Glass v Commonwealth of Australia [2002] ACTSC 30

4. The appellant was an officer in the Royal Australian Navy. He claimed that he was given negligent advice by the Commonwealth about options which he might exercise in relation to his pension and associated benefits which might accrue upon his eventual retirement from the service. The advice was, in effect, that the appellant's prior service in the Royal New Zealand Navy would not give rise to a "transfer value" for the purpose of the Defence Force Retirement and Death Benefits Act 1973 (the Act). The Magistrate found that the Commonwealth was under a duty of care in relation to the giving of that advice, and that the Commonwealth was in breach of that duty.

5. It is convenient to deal first with the Commonwealth's contention that the Magistrate should not have found negligence on the part of the Commonwealth.

6. The Magistrate was correct in finding that the Commonwealth owed a duty of care to the appellant. So much is conceded. The exact jurisprudential origin of the Commonwealth's duty of care need not be sought. The general duty, as in all cases of negligence, was to exercise reasonable care in the circumstances. The scope of the duty in the circumstances of the case was to take reasonable care to ensure that the advice given was correct, or, perhaps if not absolutely without blemish, so reasonably correct that the appellant, if he were to act upon it, was not likely to suffer loss. The Magistrate clearly recognised these principles, although, naturally enough, he expressed himself in language which does not coincide with my own. The gravamen of the Commonwealth's notice of contention is on the question of fact whether there was any breach of the duty. In that regard this Court may, and should, substitute its own view by drawing inferences for itself from the primary facts found by the Magistrate: Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531.

7. It was submitted for the Commonwealth in the appeal that the duty imposed upon a public servant cannot extend beyond the duty to take reasonable care to determine the correct answer to an inquiry by a member of the public, and, in the event that a legal issue concerning the construction of a statute arises, then to seek appropriate legal advice or warn the member of the public of the uncertainty. It was also put for the Commonwealth, whether in addition to or in the alternative, that a public servant cannot be under a duty to seek legal advice when he or she is unaware that any legal uncertainty exists and when that lack of awareness does not arise out of a failure to exercise reasonable care.

8. Submissions of this nature, couched in the language of legal principle, are apt to confuse because they are really directed at the factual circumstances, and factual circumstances vary from case to case. In the present case the submissions raise the factual issue of the reasonableness of the conduct of the officers of the Commonwealth who were responsible for preparing and tendering the advice to the appellant. If the preparation and giving of that advice was in the circumstances done without reasonable care as to its accuracy, the appellant was entitled to succeed, subject to proof that the failure resulted in loss.

9. The Commonwealth's case in this regard relied essentially on long-standing practices in the office of the Defence Force Retirement and Death Benefits Authority (the Authority) based on interpretations of the Act which had never been challenged. More precisely, reliance was placed on the lack of any doubt on the part of any Authority officer as to the correctness of the established Authority's view that commuted pensions were not to be treated as "transfer values" for the purposes of the Act. Authority staff spent a lot of time on the appellant's case, particularly in getting information from New Zealand.

10. The Commonwealth sought to distinguish the situation in the present case from that in Rennie v Commonwealth of Australia (1995) 61 FCR 351 in which the Full Court of the Federal Court of Australia said at 365:

"It is to be inferred, in the absence of evidence to the contrary, that the Authority had not at the time the advice was given to the plaintiff in 1975 sought legal opinion or taken steps to verify the view it had, which, it must have been appreciated was not the only possible view. That reference to a lawyer was necessary for a properly informed advice is tolerably clear."

However that is a finding on the facts, not a statement of a principle of law. The facts depend on the evidence.

11. It may be, as was submitted on behalf of the Commonwealth, that the evidence in the present case about whether Authority staff knew that their view was not the only possible view is lacking or at least inconclusive. However, if that is so, either they should have been so aware or there was to be attributed to the Commonwealth the knowledge that the interpretation that its officers were putting on the legislation needed checking by someone competent to give legal opinion. In the circumstances, for a Court to so hold would not be to "compel public servants to obtain legal advice even when they are satisfied that their view of the legislation is the only view open and no contrary position had been put to them" (as was put on behalf of the Commonwealth). In the present matter the appellant did challenge the established departmental standpoint. It was incumbent therefore on the Commonwealth through its staff to reflect upon the possibility that the appellant may have been correct. Furthermore, any such reflection would have then suggested to the Commonwealth that it would be advisable to get an opinion, from someone qualified to express it, on whether the Authority's practice was in accordance with the law. The arguments put by the appellant in letters written to the Authority on 19 November 1989 and 30 March 1991 in themselves should have put the Authority on notice that the departmental orthodoxy might be falsely based, and, further, if it was, then the Commonwealth stood to be liable in damages to the appellant.

12. In this respect the Commonwealth is hardly to be compared with an inexperienced litigant or potential litigant who may not recognise a problem as one of a legal nature, who does not know where to turn for advice of a legal nature and who may have difficulty in affording such advice or indeed difficulty in understanding the advice when given. Whether the Authority had a legal officer on its staff or any officer with legal qualifications with the capacity to express a view on the merit of the interpretation of the Act that the appellant was urging does not appear to be answered in the evidence before the Magistrate. However if the Authority did not have a legal officer on its staff, the Commonwealth should have had in place arrangements, as was once common with Commonwealth instrumentalities, for the Authority to be able to consult with and receive advice from the Attorney-General's Department or the Australian Government Solicitor. On the evidence before the Magistrate, such advice was available and was eventually sought and availed of, but not until long after the appellant had lost whatever right he had to commute his pension.

13. The remaining grounds of contention that were pressed on the appeal assert that the Magistrate was wrong in finding that the Commonwealth's advice caused the appellant to be denied any opportunity to retire in 1991. However, allowing for the slightly loose use of language, there is no substance in this ground. It was open to the Magistrate to find that if the appellant had received correct advice he would have resigned in 1991 and that, having received wrong advice, his decision to continue to serve beyond 1991 was caused by that wrong advice. Causation is a "common sense" concept and the Magistrate is not shown to have been lacking in common sense on this issue.

14. I am of the view that none of the grounds of contention have been made out. I leave aside the interesting argument put by the appellant that the Commonwealth was under a duty to ensure that reasonably competent advice was given. This raises the concept of a non-delegable duty, as developed in the High Court, particularly by Mason CJ in such cases as Kondis v State Transport Authority [1984] HCA 61; (1984) 154 CLR 672. However, it is not necessary to discuss this issue except to say that the duty to take care for the physical safety of employees is not to be compared with a duty to give reasonably accurate advice about retirement options.

15. The Magistrate was not satisfied that the appellant had proved that the breach of duty on the part of the Commonwealth had resulted in any damage to the appellant and accordingly gave judgment for the Commonwealth.

16. The Magistrate's conclusion that the appellant had not proved damage was arrived at by looking at the matter of the appellant's financial position as it was at the date of hearing and seeking to compare it with the hypothetical situation which would have arisen on the probabilities if the appellant had not been given the negligent advice. In order to make a finding about that hypothetical situation the Magistrate made certain findings of fact necessary to the process of reasoning that led to the final conclusion. They were, or included, findings as follows, (and largely paraphrased by me):

(i) The appellant had an option to obtain "a transfer value" relating to his previous service in the Royal New Zealand Navy, so long as that option was exercised by a certain date.

(ii) The Commonwealth incorrectly advised the appellant that he did not have that option and the appellant did not exercise it within the time allowed.

(iii) If the option had been exercised the appellant's pension upon retirement "would have been" reduced to 30 per cent of a full pension and the date on which he would have been entitled to retire would have been advanced from 6 March 1994 to 18 November 1991, a period of two years and 109 days (2.30 years).

(iv) If the appellant had received reasonably correct advice, there was a high probability that he "would have" retired from the Navy on 18 November 1991 in order to take up civilian employment.

(v) If he had entered civilian employment on or soon after 18 November 1991 the appellant "could have" commanded a remuneration package of $90,000 per annum.

17. Those findings are either admitted to be correct, or, as I have already said, not liable to be set aside on appeal.

18. On those findings the appellant was entitled to claim that he suffered a financial loss as a result of the postponement of his ability to enter civilian employment where he was likely to receive higher remuneration than if he had remained serving in the Navy. He put before the Magistrate alternative methods of calculation of that loss.

19. Using the first of such methods the Magistrate purported to compare the "actual" financial status of the appellant as at 7 March 1994 with the "hypothetical alternative" as at the same date, that is, had the appellant retired with a 30 per cent pension and gained remunerative civilian employment for the period 18 November 1991 to 6 March 1994. By that method and using figures supplied by the appellant, a figure of $50,655 was calculated as the loss.

20. The appellant put forward an alternative method of calculation of damages being "the difference between the capitalised value of a 30 per cent pension payable on 18 November 1991 and the 21 per cent pension he was in fact entitled to if he had retired on that date without achieving a transfer value", adjusted by the application of a number of complex factors. This method led to the calculation of the loss at $52,662.

21. The respondent submitted to the Magistrate that the determination of whether the appellant had suffered damage or not required the comparison between the existing financial circumstances at the time of the hearing with the circumstances that would have arisen if the appellant had commuted part of his New Zealand pension into a lump sum. The "capitalisation factors" used by the appellant were submitted to be wrong. However it appears that the Commonwealth favoured the use of some form of calculation based on capitalisation figures.

22. The Magistrate rejected the first of the alternative methods of calculation put forward by the appellant. The Magistrate said that he did so because the appellant had made no allowance for income tax and that, if such allowance had been made, "the plaintiff could have been liable for additional income tax exceeding $40,000", or assuming that some of his civilian benefits were non-taxable, "possibly by as much as $30,000".

23. Considering that this failure to take into account revealed a "flawed" approach to the issue of loss, the Magistrate turned to yet another method of calculation of the appellant's loss, if any.

24. The Magistrate considered that a relevant factor was that the appellant did not in fact retire in 1994 at the end of 15 years service, but chose to stay and take an opportunity for promotion and consequent higher pay. On that approach, there was a countervailing factor to measure against the loss, if any, arising out of postponement of the chance to join the civilian work force. That countervailing factor was the increase in remuneration following promotion whilst serving between 1994 and the date of actual retirement in 1996. Using figures supplied by the Commonwealth relating in particular to superannuation benefits, the Magistrate made a number of calculations of superannuation benefits which have accrued or which are likely to accrue to the appellant as a result of not retiring on 18 November 1991. The Magistrate concluded that the Commonwealth was correct in its submission that the offsetting of the lost opportunity to obtain civilian employment against the appellant's existing superannuation position and additional productivity benefits result in the conclusion that the appellant has suffered no loss at all. (It appears to be common ground that in his reference to the "date of hearing" the Magistrate really meant as at the date of actual retirement. This seems to me to make no difference to the Magistrate's reasoning or the calculations he made, since from the date of actual retirement to the date of hearing there was no difference between the appellant's actual situation and the hypothetical situation which would have ensued if there had been no breach.)

25. The grounds of appeal are "that errors of fact were made in the calculation of loss, namely:

(a) the totality of tax liable to be payable on the appellant's hypothetical civilian remuneration package was significantly overstated; and

(b) in the comparison made of the appellant's actual financial position as at 26 April 1996, and into the future, with the position he would have been in had he gone into civilian employment on 18 November 1991, the hypothetical civilian/RAN earnings differential for the corresponding period was significantly understated."

26. The appellant submitted in the appeal and it was conceded on behalf of the Commonwealth, that in comparing the actual remuneration from 18 November 1991 to 26 April 1996, the date of actual retirement, with the hypothetical remuneration over the same period if the appellant had retired, the Magistrate omitted to include the hypothetical civilian earnings in the period from 7 March 1994 to 26 April 1996.

27. Unless I have missed something, there is nothing in the copious material before the Magistrate or before me which enables this simple error to be corrected. The appellant instead has submitted that I should accept that the Magistrate overestimated the tax liability of the appellant's earnings in ignoring the likelihood that the appellant would have arranged his affairs, or convinced his hypothetical employer to arrange its affairs, so as to put in effect a "tax minimisation strategy" whereby from the appellant's remuneration the employer would have made maximum contributions to superannuation with tax on those contributions kept down to 15 per cent, and well below the tax payable on wages or salary

28. The appellant submits that the two errors on the part of the Magistrate should be corrected by the application of figures supplied by him which result in a loss to 26 April 1996 of $191,975 and by 26 April 2016 of $388,494. However, he acknowledges that he can be awarded no more by this Court on the appeal than he could have received in the Magistrates Court and he limits his claim accordingly to $50,000. The calculations of the above figures were amended at least twice during the hearing of the appeal and I am not to be taken to find that they are arithmetically correct.

29. The Commonwealth objected to the appellant's case as it was presented on the appeal to the extent that the case depends on material that was not before the Magistrate. Leave was refused to adduce new evidence. As the appellant appeared in person, considerable leeway was extended to him in this regard, as a result of which the Commonwealth was prepared to have its case argued more fully than might have been necessary. On the material before the Magistrate alone, the Commonwealth submitted it was not shown (and had not been sought to be shown) that the appellant was likely to have received such a high proportion of his private sector remuneration in the form of low tax superannuation contributions that his hypothetical net income in the period 1991 to 1996 would have exceeded his actual net income from naval service during the same period.

30. The respondent sought to support this argument by figures set out in various tables. I presume that those figures were before the Magistrate or arise from material that was before the Magistrate, but it is not necessary to refer to them.

RESOLUTION OF ISSUES ON APPEAL RELATING TO LOSS

31. Having regard to the way in which the case was conducted and decided in the Magistrates Court, it cannot be over-emphasised that what the appellant had to prove in order to establish liability on the part of the Commonwealth for negligence was that damage of some sort or another flowed from the breach of duty of care. The exact amount of damages or the quantification of damages to be awarded, did not have to be proved for the purpose of establishing liability. In this respect there is a difference between an action in negligence based on financial loss alone and an action in negligence for damage to property or for personal injury. In the latter classes of case, the quantification of loss or damage, that is the award of damages, follows and is easily distinguished from the proof of physical damage or injury to property or person. In the former class of case it may be difficult to ascertain whether there has been any loss at all, without some condescension as to arithmetic applied to possibilities or probabilities established on the evidence.

32. It also needs to be recognised that an action in negligence is an action for unliquidated damages. Once loss or damage is established, the quantification of that loss or damage as expressed in an award of monetary damages must follow no matter how difficult the task or unsatisfactory the evidence.

33. Next, the nature of an award of damages is to be recognised. It is not judgment for a debt or liquidated sum. In this respect damages for economic loss following negligent advice is not different from damages for personal injury. The compensatory principle applies. I am indebted to the Master for the following quotation from the judgment of McHugh J in The Nominal Defendant v Gardikiotis [1996] HCA 53; (1996) 186 CLR 49 at 54:

"When a defendant has negligently injured a plaintiff, the common law requires the defendant to pay a money sum to the plaintiff to compensate that person for any damage that is causally connected to the defendant's negligence and that ought to have been reasonably foreseen by the defendant when the negligence occurred. The sum of money to be paid to the plaintiff is that sum which will put the plaintiff, so far as is possible, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation."

34. Sometimes the loss may be measured more or less exactly by the application of arithmetic, but it is not always necessary that the damages be assessed with exactitude, and it is frequently not possible to do so.

35. It was not necessary for the Magistrate, having found that the first of the appellant's methods of calculation was "flawed" because it did not allow for tax, to then totally reject that method for that reason. It is true that where an award of damages is not taxed in the hands of the plaintiff, damages should not be calculated as if its component parts were free from tax. Otherwise the plaintiff gets a windfall. This is the principle in British Transport Commission v Gourley [1955] UKHL 4; (1956) AC 185 which is well recognised in Australia: see Cullen v Trappell [1980] HCA 10; (1980) 146 CLR 1. For instance, in personal injury cases where a plaintiff's damages for loss of earning capacity are receivable free of income tax, then the award for loss of earning capacity should be calculated on the basis of actual and likely earnings net of income tax. That is normally a somewhat inexact exercise, since it is very difficult to know exactly what tax was or would have been payable. Hence the exercise is often carried out by estimating the tax in an approximate way and avoiding the high cost of expert evidence in such matters.

36. However, I do not think that it was correct for the Magistrate to reject the appellant's first method of calculation and turn to other methods based on difficult and unfamiliar concepts of capitalisation. To me, the evidence about capitalisation rates and the like is incomprehensible without expert evidence, and even its admissibility is doubtful. What should have been done was for the Magistrate to adjust the appellant's figure by deducting the likely tax, not to reject the method and turn to alternatives based on capitalisation. In fact the Magistrate did carry out that very exercise, or attempted to do so, by applying in a broad way tax rates within the scope of judicial knowledge. In that way the Magistrate came up with a tentative conclusion that the appellant's likely loss was some $30,000 to $40,000 less than the $50,000 or thereabouts otherwise shown. It followed that it was open to the Magistrate to find that the $50,000 was not inaccurate as a gross figure and that taking tax into account the appellant, on the face of it, had suffered a loss in the region of $10,000 to $20,000. That was a finding that could have provided a solid basis for establishing that loss had been proved and liability established.

37. Next there is the matter of giving the Commonwealth credit in effect for the increased amount which the appellant earned or stood to earn by way of promotion in the period from 6 March 1994 to 26 April 1996.

38. Both parties agreed that this matter was not drawn to the Magistrate's attention but they also agreed that it should have been taken into account by the Magistrate and was not. Unfortunately, despite or because of the voluminous material available I am not able to find anything to indicate what remuneration was received by the appellant by reason of promotion during the period in question.

39. On the evidence, as I am able to comprehend it, the Magistrate was entitled to find, as he did find in a tentative way, that the appellant suffered economic loss as a result of the respondent's negligence in the region of $10,000 to $20,000. That figure should be reduced by the value, if it could be established, of any increase in remuneration paid to the appellant as a result of promotion after 6 March 1994. There is the question of onus. There was no finding by the Magistrate that the applicant was actually promoted, let alone what extra remuneration he earned as a result of such promotion. In the absence of such finding, I think the onus lies on the Commonwealth in the appeal to show on the evidence what amount should have been deducted for promotion. The Commonwealth has not discharged that onus.

40. The matter could be remitted to the Magistrate for further hearing which would involve further cost and delay. It is by no means clear that the Magistrate would be in a better position to decide it than I am now. On the contrary, if the past conduct of the case is any guide, the Magistrate is likely to be asked by both parties to give even further and closer consideration to the arithmetic and to consider more schedules and tables of figures which in the end are more of a hindrance than a help in the process of assessing the unliquidated damages which should be awarded to the appellant in the case. Without that clarification the Magistrate would be likely to award the appellant something in the region of $15,000. Although the parties do not lack enthusiasm for litigation, I venture to think that it is in their interests and certainly in the interests of the administration of justice for this Court to set aside the judgment below and order that the appellant be at liberty to enter judgment against the Commonwealth for $15,000.

41. Unless the parties wish to be heard I propose to order that the Commonwealth pay the appellant's costs in both Courts.

I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Miles.

Solicitor for the respondent: Australian Government Solicitor