Chidiac v Bhatt, Vaidya and Rosybarb Pty Ltd

Supreme Court of NSW|2014-07-25|Before: Black J

Solicitors: Stevens Cottee Lawyers (Plaintiff) P Bhatt (in person) (First Defendant) G Vaidya (in person) (Second Defendant) File Number(s): 2013/292266

Judgment

In July 2014, I heard proceedings brought by the Plaintiff, Mr Joseph Chidiac, against Mr Prashant Bhatt and others which sought a range of relief. In my judgment ([2014] NSWSC 1253) ("Judgment"), I held that Mr Chidiac had established an entitlement to rectification of the share register of the Third Defendant, Rosybarb Pty Limited ("Rosybarb") to record that he is a director and shareholder of Rosybarb and was also entitled to an order for repayment of amounts charged to his credit card.
I also held that Mr Chidiac was entitled to claim damages for breach of contract, quantified by his loss as a result of a failure to deliver a Hiace bus to Rosybarb, as contemplated by a contract between Mr Bhatt and him. However, I held that Mr Chidiac's damages were not properly quantified as the value of the bus that was to be transferred to Rosybarb, and then operated by Mr Bhatt and Ms Vaidya who were to have a half share of the profits of its operation. I noted that any loss suffered by Rosybarb or Mr Chidiac could be no more than the value of the Hiace bus after allowing for the present value of the amount that would be payable to Mr Bhatt and Ms Vaidya by way of their share in the profits that were to be obtained by Rosybarb operating that bus, and that Mr Chidiac had not sought to quantify his damages on that basis or lead evidence that would permit a quantification of damages on that basis by the Court. I observed (at [83]) that: "it seems to me that the proper course is not to dismiss Mr Chidiac's claim for damages on that basis, but to allow the parties an opportunity to seek to reach agreement as to the calculation of that loss and, if they are unable to reach such agreement, to allow them the opportunity to lead further evidence and make further submissions as to that matter if they wish to do so. It should, of course, be recognised that the costs of a further hearing as to these matters may well not be justified for either party." I also noted that, as the evidence then stood: "Mr Chidiac also claims damages referable to loss of business income from Rosybarb, by reason that he has been unable to exercise control over Rosybarb, and contends that he has lost the profits that he could and would have made from Rosybarb from the period in which the shares were wrongly transferred to Mr Hastas and then Mr Bhatt. However, there is no evidence that Rosybarb was profitable or would have been profitable under Mr Chidiac's management in that period and that claim must fail for that reason." The parties could not reach agreement as to these matters and they have now proceeded to a further hearing.

The evidence relied on in respect of Mr Chidiac's claim for damages

Mr Chidiac relies on the affidavit of his solicitor, Mr Warwick Cottee dated 9 April 2015, which referred to correspondence with Mr Bhatt and Ms Vaidya in respect of the production of documents and correspondence with an expert who was to be retained by Mr Chidiac to give expert accounting evidence. That affidavit evidence indicated that books and records of Rosybarb had not been produced to Mr Chidiac at that point, a matter which was subsequently addressed by a further order of the Court made on 9 April 2015. By an email dated 28 May 2015, Mr Bhatt responded to a complaint as to the adequacy of documents he had produced by indicating, first, that he would "try to find" what Mr Chidiac's solicitors had sought, and second, contending that he had "submitted everything". It does not appear that further documents were thereafter produced. In those circumstances, it seems to me that Mr Chidiac had little prospect of obtaining further production of documents from Mr Bhatt.
Mr Chidiac also relied, by leave, on the further affidavit of Mr Cottee dated 23 June 2015, which annexed correspondence from the expert accountant retained by Mr Chidiac, which identified deficiencies in the information provided by Mr Bhatt and expressed the view that he could not properly give an opinion without access to full, complete and verifiable information. While some of the missing information was potentially obtainable by Mr Chidiac from public documents, substantial parts of that information were likely to be within the control of Mr Bhatt and Ms Vaidya, although they related to the affairs of Rosybarb. In circumstances that the documentation required by the expert accountant to prepare his report was not, it appears, produced by Mr Bhatt, there can be no criticism of Mr Chidiac for the fact that he has been unable to lead expert accounting evidence, or seeks to do the best that he can do in quantifying his damages from publicly available information, where he has been unable to access information relating to Rosybarb and other entities associated with Mr Bhatt and Ms Vaidya.
In particular, Mr Cottee's affidavit exhibited a report ("CIE report") prepared by a private economic research agency, the Centre for International Economics, for the New South Wales Independent Pricing and Regulatory Tribunal, titled "Reweighting of the Taxi Cost Index", in April 2012, about the time of the relevant transaction. I will refer to the CIE report in some detail below. Mr Chidiac also relied on two further documents issued by the Australian Taxation Office in 2012 and 2013, being benchmarks adopted by the Australian Taxation Office in relation to earnings of taxi drivers and operators. It seems to me that those documents are of less utility than the CIE report, so far as they are prepared for the purposes of allowing individual operators to compare their business performance to industry averages, and are significantly less detailed than the CIE report.
Mr Bhatt in turn tenders a letter dated 13 October 2014 from Transport for NSW to the NSW Taxi Drivers Association in relation to ride sharing, which confirms that taxi booking services, whether via "apps" or otherwise, must be provided by authorised drivers and using the taxi meter. He refers to a newspaper article referring to regulatory action against drivers associated with the "Uber" ride sharing service. So far as these documents are intended to indicate that there is a risk to the profitability of the taxi business by reason of the operation of ride sharing services such as "Uber", it seems to me that the evidence does not establish any risk beyond the usual competitive risks involved in a business, which are sufficiently reflected by the discount which I will apply below, so far as Mr Chidiac's claim is one for loss of opportunity. Mr Bhatt also refers to a document issued by IPART in October 2013 setting out the structure of the taxi industry in New South Wales, on which there is a handwritten notation, which contains a figure after costs, which is not otherwise proved by Mr Bhatt.
Mr Bhatt relies on a statement of Mr Harry Hastas, who gave evidence at the earlier hearing, dealing with the circumstances in which he made available a Toyota Prius V for use as a taxi by Rosybarb from July 2012 to August 2014. Mr Hastas indicates that he trusts Mr Bhatt and authorised him to operate and manage another company which Mr Hastas established on 8 October 2014, Hastas Group Pty Ltd, and that Mr Hastas now has certain reservations about proceeding with the purchase of a Hiace bus for use of the disabled community. Mr Hastas then says, in a passage which is somewhat obscure: "I made this submission in attempt [sic] to resolve the matter between the two party's [sic]. This initiation is to help out Mr BHATT to acquire one Toyota Hiace bus for sole purpose to run as taxi in the company "Rosybarb". It is my understanding that in doing this Mr BHATT can fulfil the agreement to transfer one Hiace bus to the company Rosybarb." It does not seem to me Mr Hastas' statement takes matters further, so far as the issue before the Court is now one of quantification of damages, arising from Mr Bhatt's previous failure to transfer a particular Hiace bus to Rosybarb.
Mr Bhatt also tenders a statement from his wife, Ms Vaidya, who also gave evidence in the earlier hearing. Ms Vaidya makes some observations as to Mr Chidiac's lack of involvement in the earlier operations of Rosybarb, which are not relevant to the quantification of Mr Chidiac's claim for damages. Ms Vaidya points to the financial statements of Rosybarb to indicate that it has not been profitable, which is common ground between Mr Chidiac and Mr Bhatt. However, the historical profitability of Rosybarb, under the control of Mr Bhatt and Ms Vaidya, is not a matter that displaces the prospect that it would be profitable, to the extent that it conducted a business confined to operating, or leasing to drivers, the Hiace bus that was to be delivered to it under the arrangements between Mr Chidiac and Mr Bhatt. Ms Vaidya asserts that it is within her rights to claim wages against Rosybarb. Such a claim is not a matter in issue in these proceedings or relevant to the calculation of the profits that Rosybarb would obtain from operation of the Hiace bus.
Ms Vaidya in turn expresses the view that the amount of damages claimed by Mr Chidiac is "preposterous" and that an earlier, lesser, quantification of Mr Chidiac's damages is based on assumptions "not at all reflecting the realities for NSW Taxi drivers and operators". It seems to me that little weight can be given to that statement, where Ms Vaidya does not give evidence, in admissible form, as to the costs and expenses of previously operating the Hiace bus, and Mr Bhatt and Ms Vaidya have not produced the documents that would be relevant to an informed assessment of that matter. Ms Vaidya also refers to financial statements for Rosybarb for the years ended 30 June 2012 and 30 June 2013, which were tendered by Mr Bhatt for a limited purpose, to establish they had been provided to Mr Chidiac's solicitors and not as proof of the truth of their contents. However, the financial statements for Rosybarb in those years do not displace any claim as to the profitability of the Hiace bus if it were operated in a business-like manner within the arrangement contemplated between Mr Chidiac and Mr Bhatt.
Mr Bhatt also tendered, at the hearing, an additional document relating to the taxi industry's response to services provided by Uber and correspondence with Legion Cabs as to fees payable in respect of a particular taxi.

Mr Chidiac's submissions as to damages

Mr Rose, who appears for Mr Chidiac, made submissions as to the general principles applicable to an award of damages, which are uncontroversial. Mr Rose submitted that difficulty in determining damages because evidence is lacking will not deter the Court from making an award of damages, and refers to Howe v Teefy (1927) 27 SR (NSW) 301 at 306; JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 at 241-242. He also submits that, in the face of uncertain evidence, the law is willing to take a "broad brush approach" particularly where it is impossible to adduce precise details of the loss. I accept of course, that the Court must do the best it can to make a reliable assessment of damages, where damages are difficult to assess, including where the Plaintiff has failed to lead the best evidence of damages: Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 83, per Mason CJ and Dawson J, 125 per Deane J, 153 per Gaudron J. However, that proposition requires some qualification, by reference to the principles which I summarised in Re Waterfront Investments Pty Ltd (in liq) [2015] NSWSC 18; (2015) 105 ACSR 280 at [44] as follows: "… in Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 at 319, Pincus J noted that "if the evidence called by the plaintiff fails to provide any rational foundation for a proper estimate of damages the Court should simply decline to make one". That approach was approved by Brooking J in JLW (Vic) Pty Ltd v Tsiliglou [above] and by the Court of Appeal in Troulis v Vamvoukalis [1998] NSWCA 237 where Gleeson CJ observed that, where damages were susceptible of evidentiary proof, but there was an absence of raw material to which good sense may be applied, "[j]ustice does not dictate that … a figure should be plucked out of the air". That decision has been approved in subsequent cases, including McCrohan v Harith [2010] NSWCA 67 at [128], where McColl JA (with whom Campbell JA and Handley AJA agreed) held that an estimate of damages, in the nature of a "guess", should not be made where precise evidence of the damages suffered could have been adduced, but was not." In this case, that principle has limited application where the difficulties in calculating damages arise from the fact that, by reason of Mr Bhatt's breach of contract, Rosybarb never had the opportunity to operate the Hiace bus, and by reason of limited production of documents by Mr Bhatt, and the Court must do the best it can despite those difficulties.
Mr Rose also points to the principle, the relevance of which I will note below, that damages may be awarded for loss of opportunity of profit which is causally linked to a breach of contract: Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 at 355. Mr Rose submits that, once causation is established, the fact that a claimed loss involves a degree of speculation does not necessarily exclude recovery for that loss: McRae v Commonwealth Disposals Commission [1951] HCA 79; (1951) 84 CLR 377 at 412; Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 at 643; Commonwealth of Australia v Amann Aviation Pty Ltd above; Sellars v Adelaide Petroleum NL above at 350.
Mr Rose submits, and I accept, that it would have been in the reasonable contemplation of the parties that Mr Chidiac would suffer loss, if Mr Bhatt did not comply with his obligations under the relevant contract, including by way of loss of a return from the ownership of shares in Rosybarb, which would in turn have operated the contemplated taxi business using the Hiace bus that was to be transferred to it by Mr Bhatt. Mr Rose also submits, and I accept in principle, that Mr Chidiac is entitled to damages for the lost profit that he may reasonably expected to have gained from Rosybarb's operation of the taxi cab business using the Hiace bus. Mr Rose rightly points out that it is not possible to calculate Mr Chidiac's losses by reference to what was in fact earned by the operation of that bus, because it was never transferred to Rosybarb, and the Court is left to do the best it can in calculating damages in respect of the operation of that bus, where Rosybarb was deprived of the opportunity to do so.
Mr Rose pointed out, and I had held in my earlier judgment, that Rosybarb was accredited as a taxi cab operator under the Passenger Transport Act 1990 (NSW) for three licensed taxis. He pointed to the provisions which deal with accreditation of a taxi cab operator, which I do not understand to be controversial. There is no reason to think that, under the arrangements contemplated between Mr Chidiac and Mr Bhatt, that Rosybarb could not have retained its accreditation as a taxi operator, and that Mr Chidiac or Ms Vaidya as a designated manager could not have established that they were fit and proper persons to be responsible for the operation of a taxi cab service. (I give little weight to an issue as to Mr Chidiac's previous use of disabled taxi dockets which had arisen at the earlier hearing, because it was not fully addressed by the evidence at the hearing, not determined by the Judgment and not raised by Mr Bhatt in respect of the quantification of damages.) Mr Rose also submitted that the required standards for financial liability for accreditation of a taxi cab operator are not particularly onerous, and again there appears to be no reason to assume that Rosybarb could not have continued to satisfy those requirements, where it had previously done so under Mr Bhatt's or Ms Vaidya's control.
It is important to recognise that there was, in fact, some evidence as to the likely earnings of the taxi business to be operated by Rosybarb at the primary hearing. Mr Chidiac had given affidavit evidence of a conversation with Mr Bhatt in which Mr Bhatt had explained the likely income and expenditure of operating a wheelchair accessible taxi, in terms that provide considerable support for the adoption of the industry averages on which Mr Chidiac now relies. In particular, Mr Chidiac had referred to Mr Bhatt's advice that a wheelchair accessible taxi bus would generate income of between $4,800 and $5,600 per month (Chidiac 20.9.13 [25]), and referred to the costs incurred in operating that bus, including costs referable to the taxi registration, insurance, radio fees, finance of the bus and service and repairs. Mr Bhatt had there estimated a 10 year life for the taxi, although the CIE report to which I refer below estimates a lesser life. Mr Bhatt had informed Mr Chidiac that a taxi bus would generate an average of about $12,000 per year for the first 4 years and then about $30,000 - $34,000 in the following 6 years, because the lease of the bus would have been paid out after the first 4 years.
Mr Rose took me through the CIE report in considerable detail in submissions. That report contained an analysis, relevantly, of the cost and revenue that would ordinarily be derived by the operation of a wheelchair accessible taxi in the Sydney metropolitan area, on the basis that that taxi was leased by the taxi operator to a driver for particular shifts. It seems to me that it is a reasonable inference that Rosybarb would have taken that course, where Mr Chidiac was himself disabled and unlikely to drive the taxi himself, and would presumably have caused Rosybarb to make the taxi available either to third party drivers, or alternatively to Mr Bhatt on terms that were no less economically advantageous to Rosybarb than the lease of the vehicle to third party drivers.
Mr Rose pointed to the CIE report's conclusion that the total amounts paid by drivers for a wheelchair accessible taxi would on average be $55,509 per year excluding GST; the total costs incurred by an operator in respect of such a vehicle would on average be $45,262 per year; and the estimated earnings for a taxi cab operator in respect of such a vehicle (in each case in an urban area) would on average be $10,426 per wheelchair accessible taxi per year. (For convenience, the money figures set out in this judgment are in dollars and not cents). That report also noted that the life expectancy for such a vehicle would, in the case of a wheelchair accessible taxi, be 8.3 years which is less than the expected life of the Hiace bus as indicated by Mr Bhatt to Mr Chidiac at the time of entry into the arrangement between them.
I am, on balance, prepared to accept that a calculation of Mr Chidiac's loss may be made by reference to the CIE report, in circumstances that it provides the best available evidence of the likely earnings from operation of a taxi business, where Rosybarb has been deprived of the opportunity to operate that business and Mr Bhatt has not produced documentation that would be sufficient for a calculation of the profits serviced from the taxi business that he and Ms Vaidya had conducted using the Hiace bus.
In his initial submissions, Mr Rose calculated the present value of an average taxi cab operator's earnings from a wheelchair accessible taxi in metropolitan Sydney, using the earnings figure derived from the CIE report and a discount rate of 4% per annum, as $68,983 over a period of 8 years and $76,182 over a period of 9 years. That calculation was not supported by expert accounting evidence, as I noted above, but appears to adopt a conventional methodology for discounting future earnings to the present, subject to the question of the basis of the discount rate applied, which I will address below. Mr Rose submitted that a half share in the present value of such earnings would be between $34,491 and $38,091, and that the midpoint of that calculation would be $36,291. Mr Rose in turn refers to the observation in paragraph 82 of the Judgment and calculates Mr Chidiac's damages as the value of the Hiace bus of $76,000 (Judgment [36]), less the present value of the amount that would be payable to Mr Bhatt by way of a share of the profits obtained by Rosybarb operating the Hiace bus, in the range of $34,491.85 - $38,091, producing a result of $37,908 - $41,508.
Alternatively, Mr Rose submits that Mr Chidiac's loss would be the half share of the profits that would have been derived by Rosybarb, and available for distribution to him, over the period of operation of the bus, in the range of $34,491 to $38,091. It seems to me that, notwithstanding the possible calculation to which I referred in paragraph 82 of the Judgment, Mr Rose is correct that Mr Chidiac's loss is likely to be best estimated by the loss of profits that would have been available for distribution to him over the relevant period, through operation of the bus to the end of its useful life, rather than by taking the present value of the bus and deducting the profit payable to Mr Bhatt. As Mr Rose rightly points out, the latter methodology would not take account of the fact that, as well as Rosybarb acquiring the bus, Mr Chidiac would have derived profit from Rosybarb's operation of the bus over the relevant period. Once the calculation is undertaken on the basis of Mr Chidiac's loss of profits, it is not necessary to make any further adjustment for the value of the bus, since it will be used to the end of its useful life to generate the profits earned by Rosybarb and, after payment of Mr Bhatt's profit share, available for distribution to Mr Chidiac.
The discount rate of 4% adopted in Mr Rose's initial calculation of Mr Chidiac's damages was not supported by any expert evidence. By supplementary submissions served, by leave, on 6 July 2015, Mr Rose undertook a revised calculation of his damages, which adopted a revised discount rate in determining the present value so as to quantify his damages. In those supplementary submissions, Mr Chidiac accepted that he was not able to proffer expert evidence that would support any particular discount rate, and submitted that the Court should adopt a discount rate of 5%, which has from time to time been recognised by the Courts as available in the absence of other evidence: Batterham v Makeig [2010] NSWCA 86 at [115]-[116]. Mr Rose points to the genesis of such a discount rate in assessing damages for future economic loss as a result of personal injury cases, although it has been used in other contexts as in Batterham v Makeig above. In the circumstances, and given the relatively small amount of damages involved and the difficulties which Mr Chidiac has had in obtaining the material necessary to brief an accounting expert from Mr Bhatt, I am satisfied that I may properly adopt that discount rate.
Mr Chidiac's initial calculation of his damages also did not allow for the fact that Rosybarb would be required to pay tax on its corporate earnings, in calculating the amount of the earnings that would be available for distribution to Mr Chidiac, so as to determine their present value. After I raised this matter in oral submissions on 23 June, by his supplementary submissions served, by leave, on 6 July 2015, Mr Chidiac adjusted for the fact that the company tax rate payable by Rosybarb would have been 30% over the relevant period. That calculation was undertaken, properly in my view, on the basis that Mr Bhatt's share of Rosybarb's profit would have been an expense of the company, paid before its profit was determined, and assessable to tax in his hands.
The calculation undertaken in Mr Chidiac's supplementary submissions revised his claim for damages from $95,954 to $119,510, in accordance with what was described as scenario 2 under method "B", which in turn depended on the applicable discount rate and the period over which the discounting was conducted. Method "B" referred to in Mr Chidiac's supplementary submissions is a calculation by reference to the income streams that would have been payable to Mr Chidiac from Rosybarb's operation of the Hiace bus, and, as I noted above, I am satisfied that that is a proper calculation in the relevant circumstances. Scenario 1 under that method uses the earnings indicated for a wheelchair accessible taxi in an urban area, including leasing payments. Scenario 2 omits the expense for vehicle costs and vehicle lease payments, on the assumption that the Hiace bus would not be leased by Rosybarb and it would not incur vehicle costs or vehicle lease payments. I am unable to proceed on that basis, first, because the evidence at the primary hearing was unclear as to this issue and, second, the limited evidence that did address that issue, so far as Mr Bhatt explained the costs of operation of the vehicle to Mr Chidiac, included reference to lease payments over the first four years of the life of the bus, and that suggests that the transfer of the bus to Rosybarb might well have occurred in circumstances that it was subject to continuing lease arrangements. The form of the calculations undertaken by Mr Chidiac do not permit the calculation of damages on the basis that the lease continue for part of the relevant period.
Accordingly, I prefer Mr Chidiac's calculation under method "B", scenario 1 to Mr Chidiac's preferred calculation under method "B" scenario 2. I will adopt a life of the bus of 8 years in that calculation, on the basis that that gives appropriate weight to the fact that the bus was not new when it was to be transferred to Rosybarb, but that Mr Bhatt had represented that it would have a longer life of 10 years than the 8 years assumed in the CIE report. I will adopt a 5% discount rate on the basis noted above. The result of that calculation is that Mr Chidiac's damages, for the failure to transfer the bus, should be $33,114.
Mr Rose also submits that, because the figures used in the CIE report are "average" figures, there is no need for the Court to adjust the calculations on loss of opportunity principles. I do not accept that submission. It is necessary to apply loss of opportunity principles, first, because the CIE report reflects an average return for a taxi business, as Mr Rose accepts, but that concept necessarily involves the possibility that some taxi operators will be more successful and others will be less successful. There is no reason to think that Rosybarb would have been a better than average taxi operator, where Mr Chidiac had no experience in operating a taxi business, and the matters in issue in these proceedings suggest that the arrangements between Mr Chidiac, Mr Bhatt and Ms Vaidya for the future operation of that business may well not have run smoothly. However, the discount required does not seem to me to be very large, where the business was not a particularly complex one and both parties had an incentive to seek to secure the profitability of the arrangement. A discount in these circumstances is necessarily a matter of impression, particularly where the CIE report and the parties' evidence does not address the variability around average earnings of a taxi operator but, doing the best I can in the circumstances, it seems to me that a discount of 15% is appropriate, reducing Mr Chidiac's damages to $28,147, rounded up to the nearest dollar.
Mr Chidiac also notes that judgment is yet to be entered in his favour for the credit card claim (recognised in Judgment [88]-[93]) in the amount of $1,072, and that amount should also be included in the judgment in his favour.
Mr Chidiac also claims interest under s 100 of the Civil Procedure Act 2005 (NSW). That section provides that, in proceedings for the recovery of money, including damages, the Court may include interest in the amount for which judgment is given, to be calculated at such rate as the Court thinks fit on the whole or any part of the money, and for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. In this case, the cause of action arose on Mr Bhatt's failure to cause the transfer of the shares in Rosybarb to Mr Chidiac and the transfer of the Hiace bus to Rosybarb. I am satisfied that this is a proper case for the award of interest under s 100 of the Civil Procedure Act since Mr Chidiac has been deprived of the earnings which he would have had from Rosybarb, from the point at which the shares in Rosybarb were not transferred to him and the bus was also not transferred to Rosybarb. It will be necessary for Mr Chidiac to calculate the amount of interest on the damages that have been awarded to him in bringing in orders to give effect to this judgment.

Mr Chidiac's claim for a tax gross-up

In his submissions and supplementary submissions as to damages, Mr Chidiac also sought to have his damages adjusted upward to allow for the tax impact of a judgment. Mr Rose submits that regard is had in the assessment of damages to whether the loss for which the Plaintiff is obtaining compensation represents a receipt which would have been taxable in its hands and whether the award of damages is taxable. Mr Rose refers to British Transport Commission v Gourley [1956] AC 185, which is authority that, where a person is to be compensated for a loss arising from the fact that they would not receive an amount that would have been taxed (for example, lost earnings), but the amount received by way of damages was not taxable, the amount of the award should be reduced by the amount of tax that would have been payable. Mr Rose submits that, where taxation on damages is higher than it would have been had the contract been performed, the amount awarded in damages should be appropriately increased to counteract the shortfall that would be created by the increased burden of tax.
That proposition is not, however, a universal rule. In Daniels v Anderson (1995) 37 NSWLR 438 at 582-586, Clarke and Sheller JA undertook a detailed review of the authorities commencing with Gourley and referred to the judgment of Walsh J in Williamson v Cmr for Railways (1960) SR (NSW) 252, where his Honour observed (at 280): "But neither in Gourley's Case nor in the other cases in which it has been considered, has there been an extension of its principle beyond cases where the claim is that earnings or profit which would otherwise have been made have been lost, and where it is evident that such earnings or profits, if made, would have attracted a direct liability for the payment thereon of income tax. I am not disposed to extend the principle beyond such cases, The attempt here made is to extend it so as to take taxation into account in every situation where it appears that it is possible to say that if the loss complained of had not occurred, or if, when it occurred, the plaintiffs had made it good, there would have been some consequential difference in the tax payable. Gourley's Case stresses the importance of the principle of remoteness under which it is not all the consequences of the loss which are to be taken into account."
Their Honours summarised the relevant principles (at 585) as including that: "If a comparison between taxable receipts for which damages are recoverable and the taxability of the compensatory verdict are so uncertain and depend upon such imponderables as the degree to which the plaintiff can for example carry forward losses from previous years the appropriate course is to ignore taxation considerations. If on the other hand it is unjust not to take account of identifiable and quantifiable taxation impacts both on the lost receipts and the compensatory damages then these may be taken into account in assessing damages." Their Honours concluded that tax consequences should not be taken into account in that case, where there was uncertainty as to what they would be, and observed (at 586) that: "Even if a judicious blend of principle and expediency should determine the account to be taken of the impact of tax, in our opinion such an adjustment cannot be supported in the present case. AWA has adverted to circumstances which would make it difficult if not impossible to arrive at an amount which would allow appropriately for the tax consequences of the reduction in the company rate. In most cases if damages to be awarded to a plaintiff are taxable, taxation should not be taken into account in their assessment. There may be exceptions, but this case is not one." That approach was in turn applied, albeit in the context of an application for production of documents to permit tax to be taken into account in a calculation of damages, in Archer Capital 4A Pty Ltd (as trustee for Archer Capital Trust 4A) v Sage Group plc (No 1) [2013] FCA 1029.
Mr Rose proceeds, in the supplementary submissions, on the basis that Mr Chidiac's income from Rosybarb would be the same as Rosybarb's pre-tax (which I assume is a misprint for post-tax) income in the sense that all distributable profit of Rosybarb would have been distributed, and that Mr Chidiac would normally receive franking credits against his personal income tax on that income, to account for tax already paid by Rosybarb. Mr Chidiac submits that he would have been entitled to claim a refund of those franking credits from the Australian Taxation Office each year. Mr Chidiac seeks to adjust the amount of damages upward on the basis that his only source of income for the years 2012-2014 was a disability support pension, which was tax exempt income and the effect of additional earnings of $5,000 per year on his income would have been nil as his income would have continued to fall below the tax-free threshold in each year. Further documents relating to Mr Chidiac's tax affairs for the period 2012-2014 (Ex P3, tab 5) were admitted without objection at this hearing. The amount involved in the tax gross-up on damages calculated over an 8 year period and a discount rate of 4% is calculated by Mr Rose as $4,086, although the claim again involves significant complexities.
Although the amount involved in Mr Chidiac's claim for a tax gross-up is modest, the issues involved are complex and would depend both on the circumstances of Rosybarb and of Mr Chidiac when any tax liability arose. The complexities that arise from Mr Chidiac's claim to gross up the damages for tax, which were not the subject of expert accounting or tax evidence, are such that the Court would not necessarily be aware of, for example, policies or rulings of the Australian Taxation Office that were relevant to those issues. Those issues included whether franking credits that were available to be offset against the taxable income of a shareholder in a company would be refunded by the Australian Taxation Office, where Mr Chidiac did not pay income tax on his disability support pension and received no other taxable income, or would merely be treated as available as a credit against future income tax that Mr Chidiac may or may not pay, or would be treated in some other manner. Another issue addressed by Mr Rose was the capital gains tax implications of an award of damages to Mr Chidiac, involving issues such as whether, for example, the cost base of acquiring Mr Chidiac's right to compensation was zero, a matter that is hardly self-evident where significant costs have plainly been incurred in respect of the conduct of the proceedings.
It does not seem to me that the Court can order that Mr Chidiac's damages be grossed-up on this basis. The first difficulty with the claim is that, even assuming that Mr Chidiac had allowed Mr Bhatt adequate notice that this issue would have to be addressed, where it was not pleaded, he has not led expert evidence to assist the Court to address the complexities that I noted above, and ensure the Court has access to the policies and rulings of the Australian Taxation Office that may be relevant to its doing so. The second difficulty with this claim is that it was outside the leave that I had granted in the Judgment, to lead further evidence as to the quantification of Mr Chidiac's damages, a matter which itself should have been addressed at the initial hearing. The fact that such leave was not granted was not surprising where no such claim had been pleaded or foreshadowed at the initial hearing and such leave had not been sought. The fact that Mr Chidiac was allowed a further opportunity to address issues as to quantification of damages which ought to have been, but were not, addressed at the initial hearing did not support a reopening of the case on other issues that had neither been pleaded nor addressed at the initial hearing.

Restitution and specific performance

Mr Chidiac also made further submissions as to restitution and specific performance, which were outside the leave that had been granted to address the deficiencies in his claim for damages. The courts have repeatedly emphasised that that course is inappropriate: Carr v Finance Corp of Australia Ltd (No 1) [1981] HCA 20; (1981) 147 CLR 246 at 257-258; Notaras v Waverley Council [2007] NSWCA 333 at [147] per Tobias JA, with whom Mason P and Hodgson JA agreed; Bull v Lee (No 2) [2009] NSWCA 362 at [8]. The submissions as to these matters should be disregarded in accordance with established principle.
I would add that Mr Chidiac's submissions in respect of restitution seem to me to seek to reagitate matters that were addressed in the Judgment, largely by reference to submissions that had not been put before me at the hearing. Mr Chidiac's submission as to specific performance is, in effect, that although he had not sought such an order, and although I had identified (in Judgment [76]) several matters that may have been an obstacle to such an order, had it been sought, the Court was nonetheless required to give such judgment or make such orders as the nature of the case requires under s 90 of the Civil Procedure Act. It is difficult to see that an order for specific performance could have been made so far as it contemplated that Mr Chidiac and Mr Bhatt would now work together in operating the taxi business. If that were not to occur, it seems to me that Mr Chidiac could not have done equity, had an order for specific performance been made in respect of the delivery of the bus, since that would have required that he compensate Mr Bhatt for the profits that Mr Bhatt would have derived from operating the taxi business under the proposed arrangement, but would not derive if he were excluded from it. There is no suggestion that Mr Chidiac has the financial resources to provide such compensation to Mr Bhatt.
It also seems to me that the nature of the case cannot require that relief be granted which a party has not sought, where the other party has neither had the opportunity to lead evidence in response nor the opportunity to make submissions as to that relief, and that issue could only now be addressed if leave to reopen, which is not sought, were granted and further hearing days allocated to this proceeding, which has already involved a lengthy hearing that is likely to be entirely disproportionate to the amounts in issue in it.

Costs

I now turn to the question of costs as between the parties, which is to be determined by reference to s 98 of the Civil Procedure Act which relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court; and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") in turn provides that, where the Court makes an order as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs.
It will be recognised that these proceedings arose from an initial payment by Mr Chidiac to Mr Bhatt of $60,855.64 in contemplation of the transfer of shares in Rosybarb held by Mr Bhatt's wife, Ms Vaidya to Mr Chidiac, and the transfer of a Hiace bus to Rosybarb. The proceedings were initially commenced, consistently with the amount in issue in them, in the Local Court of New South Wales. They were transferred to this Court when Mr Chidiac sought additional relief, which could only be granted in this Court, in part of which he has been successful. The proceedings were then heard over five hearing days, in their first stage. At least a part of the length of the hearing was attributable to the fact that Mr Bhatt and Ms Vaidya represented themselves, although part was also attributable to the fact that Mr Chidiac brought an unsuccessful claim against Ms Vaidya. By reason of Mr Chidiac's failure to establish his damages at the initial hearing, issues as to the production of documents by Mr Bhatt and the lateness of service of Mr Chidiac's damages evidence and submissions at the further hearing as to damages, two further hearing days have been required to address the quantification of damages.
It seems to me that, at best, an order for costs could have been made in favour of Mr Chidiac for half of the costs of the initial five days of the hearing, where a substantial part of that hearing was directed to his unsuccessful claim against Ms Vaidya, and he would only not have been ordered to pay Ms Vaidya's costs of that hearing because she had represented herself. On balance, I consider that that order for costs should extend to one of the two days of the additional hearing devoted to the question of damages. In reaching that view, I have had regard to the fact that the earlier hearing would likely have required an additional day, had Mr Chidiac and Mr Bhatt led adequate evidence as to damages at that point. However, Mr Bhatt should not be required to pay the costs of the second day of the hearing as to damages, the need for which largely resulted from the late service of evidence by Mr Chidiac.
The limitation to an order to half of Mr Chidiac's costs of the hearing as to liability reflects the principle that, in some circumstances, it will be appropriate to make an adjustment as to the order for costs where a plaintiff is successful against one defendant and not successful against other defendants. In Currabubula Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232, Einstein J dealt with the position of multiple parties, some successful and others unsuccessful, and referred (at [95]) to the "rule of thumb" that is designed: "… to achieve substantial justice in the awarding of costs as between a partially successful plaintiff and variously successful and unsuccessful defendants. The rule operates upon the premise that defendants are proportionately responsible for and liable for the joint costs involved in mounting the defence. … [T]he partially successful plaintiff is prevented from looking to each of the unsuccessful defendants for more than an equal proportionate share of the costs not solely referable to the plaintiff's case against one or other of the defendants individually, in addition to the costs which are so referable. In this way, the rule of thumb prevents both the unjust enrichment of the partially successful plaintiff … and the casting of an unfair burden on the unsuccessful defendants.." I reviewed the subsequent case law relating to that principle in my decision in Re Employ (No 96) Pty Ltd (in liq) [2013] NSWSC 456 at [10]-[11] and I need not repeat that review here.
The result in this case also raises the possible application of UCPR r 42.34 which deals with the position where a plaintiff obtains a judgment against a defendant in an amount of less than $500,000 in this Court. That rule provides that: "(1) This rule applies if: (a) In proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) The plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied that the commencement and continuance of the proceedings in the Supreme Court, rather than the District Court, was warranted."
Mr Chidiac has recovered much less than the amount specified in this rule. There is an issue whether the commencement and continuation of the proceedings in this Court, rather than the District Court (or indeed the Local Court) was warranted by the nature of the relief sought in the proceedings and their complexity. However, the relief sought in respect of the rectification of the share register of Rosybarb could only have been ordered in this Court or in the Federal Court of Australia, so far as it was relief under the Corporations Act 2001 (Cth). It seems to me that it could not be said that seeking such relief was unreasonable, and another judge of this Court accepted that the proceedings were properly transferred to the Court in making an order to that effect. In the event, that relief may have been of little practical value to Mr Chidiac, since he now contends that the shares in Rosybarb are of no value, but that is a matter that is more readily identified with hindsight than they would have been when the proceedings were commenced, particularly where the form of Mr Bhatt's and Ms Vaidya's pleadings and the form of their affidavit evidence did little to clarify the real issues in the proceedings. On balance, it seems to me that the proceedings were reasonably transferred to and continued in this Court, and Mr Chidiac should not be deprived of his costs by UCPR r 42.34.
The importance of proportionality of costs has of course, also been recognised in the case law. In Skalkos v T&S Recoveries Pty Ltd [2004] NSWCA 281; (2004) 65 NSWLR 151 at [8], Ipp JA (with whom Sheller JA and Grove J agreed) observed, in dealing with a matter where the costs assessed were several times the amount of damages awarded, that: "In my opinion, in determining whether costs have been reasonably and properly incurred, it is relevant to consider whether those costs bear a reasonable relationship to the value and importance of the subject matter in issue".
Section 98(4) of the Civil Procedure Act in turn provides: "In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount." The jurisdiction under this section is to be exercised by reference to the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in dispute under s 56 of the Civil Procedure Act, the objects of case management and the requirement that the Court follow the dictates of justice under ss 57-58 of the Civil Procedure Act and the objective of achieving proportionality between the cost of the proceedings and their importance and complexity under s 60 of the Civil Procedure Act. In an appropriate case, the Court may exercise its powers under s 98(4) of the Civil Procedure Act where the recoverable costs of a party are otherwise likely to be excessive in the circumstances: Sherbourne Estate (No 2); Vanvalen v Neaves [2005] NSWSC 1003; (2005) 65 NSWLR 268 at [42]-[44]; Ireland (as Executor of the Estate of the late Gordon) v Retallack (No 2) [2011] NSWSC 1096 at [42]-[43].
I have had regard to several matters in determining whether to order that Mr Chidiac should be allowed his costs of his claim - limited as I noted above to half of the costs referable to the initial five hearing days and the first of the two days referable to the quantification of damages - with a further limitation to a specified percentage of assessed costs or capped at a specified sum. Relevant factors to whether an order limiting costs should be made, as summarised in Ritchie's Uniform Civil Procedure NSW at [s 98.45], include the parties' relative responsibility for the costs incurred; the degree of disproportion between the issues litigated and the costs claimed; the complexity of the proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability. It seems to me that this case was complex, having regard to the amount in issue, but that could not have readily been avoided by Mr Chidiac given the nature of the issues. The manner in which Mr Bhatt and Ms Vaidya conducted their defence, including a lengthy cross-examination of Mr Chidiac, contributed to the length of the hearing. On balance, it seems to me that it would not be appropriate to limit Mr Chidiac's costs, recoverable against Mr Bhatt to a fixed percentage of assessed costs or a capped amount, although the recoverable costs may well exceed the amount ultimately recoverable by Mr Chidiac by way of damages.
In these circumstances, the proper order as to costs is that Mr Bhatt pay (1) half of Mr Chidiac's costs of and incidental to the initial five days of the hearing as to liability, 1 - 3 and 24 - 25 July 2014, and (2) Mr Chidiac's costs of and incidental to the first of the two hearing days referable to quantification of damages, both as agreed or as assessed.

Summary

Accordingly, I will make orders that there be judgment in favour of Mr Chidiac and against Mr Bhatt in the amount of $29,219 and interest under s 100 of the Civil Procedure Act 2005 (NSW), and that Mr Bhatt pay (1) half of Mr Chidiac's costs of and incidental to the hearings on 1 - 3 and 24 - 25 July 2014 referable to liability, and (2) Mr Chidiac's costs of and incidental to the hearing on 23 June 2015 referable to quantification of damages, both as agreed or as assessed. I will, however, reserve liberty to Mr Chidiac to apply within 7 days so far as he seeks to rely on a "without prejudice" offer made in the course of proceedings, the existence of which, but not the content of which, was referred to in submissions.
The parties should bring in orders to give effect to this judgment within 7 days.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 September 2015

Civil Procedure Act 2005(NSW)ss 56, 57, 58, 60, 90, 98, 98(4), 100

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