Interchase Corporation Limited v ACN 010 087 573 P/L & Ors [2000] QSC 13

COSTS - Calderbank letter - indemnity costs - depriving a successful defendant of costs - reopening order to provide for any assessed GST obligation.

Acts Interpretation Act 1954

A New Tax System (Goods and Services Tax) Act 1999 (Cth)

Supreme Court of Queensland Act 1991

Bamco Villa Pty Ltd v Montedeen Pty Ltd (BC 9800837)

Brimaud v Boston Securities Entertainment Investments Pty Ltd (BC 9805831)

Calderbank v Calderbank [1976] Fam 93

Carborundum Realty v RAIA Arcicentre Pty Ltd (1993) ATC 4418

Commissioner of Main Roads v Sherry (1964) Qd R 388

Cretazzo v Lombardi (1975) 13 SASR 4

Duke Group Ltd (in liq) v Pilmer [1998] SASC 6529; (1998) 144 FLR 1

Hughes v Western Australian Cricket Association (1986) ATPR 40-748

Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425

Pirrotta v Citibank Ltd (1998) 72 SASR 259

Provan v HCL Real Estate Limited (1992) 92 ATC 4644

The Theodoros: The Blidensel [1923] P 26

Verner Trading Pty Ltd v New India Assurance Co Ltd [1991] VicRp 12; (1991) 1 VR 129

DB Fraser QC, with AW Duffy for the third and fourth defendants

Allen Allen & Hemsley for the first and second defendants

Ebsworth & Ebsworth for the third and fourth defendants

[1] WHITE J: On 12 May 2000 the parties made submissions as to the orders which ought to be made in respect of the costs of the action including a number of reserved costs.

[2] On the same day submissions were made on behalf of the plaintiff that the judgment in the action made on 18 April 2000 be varied by adding an order that the third defendant indemnify it in respect of any future liability to pay GST as defined in A New Tax System (Goods and Services Tax) Act 1999 (Cth).

[3] The plaintiff seeks orders for costs against the third defendant on an indemnity basis by virtue of certain offers to settle which orders the third defendant opposes.

[4] The third defendant's position overall is that it pay the plaintiff the costs of the action against it and one-half of "the general costs of the action" to acknowledge that the plaintiff brought its action against four defendants. It may be recalled that the plaintiff did not succeed against the fourth defendant on the sole ground that he had not assumed personal responsibility in respect of the valuation report.

[5] The material facts for a consideration of these issues may be found in two affidavits made by Mr Alexander Wilson, solicitor for the plaintiff and one by Ms Simone Nichols, solicitor for the third defendant, filed by leave on 12 May 2000, together with a general understanding of the nature of the litigation and the progress of the trial.

[6] On 17 March 1999 judgment was entered against the first defendant for damages to be assessed plus interest and an order that the plaintiff recover its costs of and incidental to the action including reserved costs to be taxed if not agreed. An admission of facts by the first defendant was filed with the application for judgment in which the first defendant admitted liability to the plaintiff for damages for breach of contract and negligence in the sum of $20 million inclusive of interest and costs. The plaintiff discontinued its proceedings against the second defendant. A copy of the order and the admissions was forwarded to the solicitors for the third and fourth defendants.

[7] For completeness I should mention that the third and fourth defendants served the plaintiff with an offer to settle made pursuant to Order 26 of the then operative Rules of the Supreme Court in the sum of $2 million on 7 April 1999. That offer lapsed fourteen days later.

[8] On 9 April 1999, before the trial commenced, the plaintiff made an offer of settlement to "all of the defendants in this action for the sum of $40 million, together with costs of the action to be taxed in full and final satisfaction of the plaintiff's claim against all of them". The offer purported to be made pursuant to Order 26 of the Rules and was open for acceptance for fourteen days.

[9] The offer was received by the solicitors for the third and fourth defendants in the afternoon of 9 April without any covering letter and without any advice from the plaintiff's solicitors as to whether the second defendant had been served with the offer of settlement. The plaintiff had filed a notice of discontinuance of the action against the second defendant on 17 March 1999. The plaintiff's solicitors wrote to the first defendant's solicitors enclosing the offer to settle "addressed to all defendants" but explained that the plaintiff wished to make an offer to settle to only one defendant, the third defendant, but was required by O 26 r 10 "to make that offer to all defendants on a global basis". The writer noted that the offer was not directed to the second defendant because it had discontinued the action against him.

[10] There was no response by the third and fourth defendants to that offer.

[11] On Friday 21 May 1999 in the course of the trial hearing, the plaintiff's solicitors forwarded a letter to the solicitors for the third and fourth defendants and received by them at 4.25pm that day, offering to settle the action inclusive of costs, for $14.6 million. It was expressly not made pursuant to Order 26. It was a term of the offer that the third and fourth defendants dismiss their claim for contribution against the first and second defendants conditional upon the first and second defendants discontinuing their cross-claim against the third and fourth defendants. (The plaintiff's solicitors, after the entry of judgment against the first defendant on 17 March 1999, acted for the first and second defendants on the third and fourth defendants' cross-claim). A further condition was that payment was to be made, if the offer were accepted, within 30 days. The offer was expressed to remain open for acceptance until 9.30am on Tuesday 25 May 1999. The plaintiff's solicitors noted that judgment would be entered against the first defendant for $20 million adding

"This debt is to be treated as separate and unconnected from the obligations of the third and fourth defendants."

[12] Ms Nichols informed the solicitors for the plaintiff after the offer had expired that she had received no instructions from her client.

[13] On Monday 9 August 1999, the day the trial hearing resumed, the third and fourth defendants offered to settle the plaintiff's action against them for $5 million inclusive of costs with the contribution proceedings being dismissed. The offer was expressed to be open for acceptance until 4.00pm 12 August 1999. That offer was rejected by the plaintiff.

[15] Up until the conclusion of the first part of the trial on 4 June 1999 the power of the court to make orders about costs was regulated by the Rules of the Supreme Court. Order 26 concerned an offer to settle. Relevantly O 26 r 10 provided

"(1) Subject to subrule (2) where there are 2 or more defendants, the plaintiff may offer to settle with any defendant, and any defendant may offer to settle with the plaintiff.

(2) Where defendants are alleged to be jointly or jointly and severally liable to the plaintiff and rights of contribution or indemnity may exist between the defendants, this Order does not apply to that offer to settle unless -

(a) in the case of an offer made by the plaintiff - the offer is made to all of the defendants and is an offer to settle the claim against all the defendants ..."

[16] By virtue of s 118B(2)(b) of the Supreme Court of Queensland Act 1991 (as amended in 1998) the Rules of the Supreme Court expired on 30 June 1999. That means that the Rules lapsed and ceased to have effect, Acts Interpretation Act 1954 ss 18 and 36. The rule-making power of the court is contained in s 118 of the Supreme Court of Queensland Act 1991. Future rules were to be called the Uniform Civil Procedure Rules ("UCPR"). The UCPR commenced on 1 July 1999, UCPR r 2 and Acts Interpretation Act 1954 s 15B. The UCPR applied, by virtue of s 135 of the Supreme Court Act 1991, "to the next step or application" in this action from the beginning of 1 July 1999 that could reasonably be taken in compliance with the UCPR. If a difficulty arises in the application of the to a pending proceeding the court may make an appropriate order to resolve the difficulty.

[17] By rule 678 of the UCPR, Chapter 17 Part 2 of the UCPR is to be applied to costs payable or to be assessed by order of the court. Rule 689 preserves the rule that costs of a proceeding are in the discretion of the court but follow the event unless the court considers another order is more appropriate or another rule otherwise provides. The ordinary rule is that costs are to be assessed on a standard basis which equates to the former party and party costs under the previous rules, rr 703, 743. The court may order costs to be assessed on an indemnity basis, previously solicitor and client costs, rr 703, 743. Rule 704(2), without limiting the power of the court to order indemnity costs, includes circumstances in which indemnity costs may be ordered if the court orders the payment of costs

(b) to a party who sues or is sued as a trustee; or

(c) of an application in the proceeding brought for non-compliance with an order of the court."

[18] Chapter 9 Part 4 of the UCPR concerns offers to settle but only those offers made pursuant to that Part, r 352. Accordingly the UCPR do not apply to a consideration of the two offers to settle made by the plaintiff on 9 April and 21 May 1999. Rule 355(1) provides that a party must specify in an offer to settle a period ending not less than 14 days after the day of service of the offer during which the offer is open for acceptance and it may not be withdrawn during that period without the court's leave. The consequences for costs orders if the offer to settle made by a plaintiff is not accepted by the defendant is expressed in r 360.

(a) the plaintiff makes an offer to settle that is not accepted by the defendant and the plaintiff obtains judgment no less favourable than the offer to settle; and

(b) the court is satisfied that the plaintiff was at all material times willing and able to carry out what was proposed in the offer;

the court must order the defendant to pay the plaintiff's costs calculated on the indemnity basis unless the defendant shows another order for costs as appropriate in the circumstances.

(2) If a plaintiff makes more than 1 offer, the offer most favourable to the plaintiff is taken to be the only offer for this rule."

[19] The previous O 26 r 10 concerning multiple defendants is replicated in r 363.

[20] Although no rule of court expressly applies to the offers of settlement made by the plaintiff on 9 April and 21 May 1999 since O 26 expired with the Rules of the Supreme Court on 30 June 1999 and the offers were not made pursuant to the UCPR which commenced on 1 July 1999, the appropriate approach is to consider the offers in the light of the previous and present rules.

[21] The plaintiff sued the two groups of defendants as jointly and severally liable for the whole loss of $62.5m which, it alleged, it sustained as a consequence of the wrongful conduct of each of them. The two groups of defendants sought contribution from each other in respect of the plaintiff's claim. It was not until final submissions that the plaintiff took the position that liability was separate. As a consequence there was no place for contribution proceedings. The defendants accepted this analysis of their alleged liability and discontinued the contribution proceedings.

[22] The third defendant contends in its submissions on costs that the plaintiff persisted in this erroneous view of the basis of liability against the two groups of defendants in order to mount "an ambit claim" to the whole alleged loss of $62.5m and thereby maintain a stronger negotiating position. I doubt, for what it is worth, that this is correct. It is more likely that the nature of the liability against each group of defendants as separate tortfeasors was not appreciated until final submissions were being prepared. But even if it were as the third defendant contends, that makes little difference to the approach to the issue of costs here.

[23] It is clear that the plaintiff has not recovered "$40m together with the costs of the action" from the third defendant in the action. There can be no basis for adding together the amount of the judgment against the first defendant and the third defendant. Although both the Rules of the Supreme Court and the UCPR refer to "alleged" joint and several liability that was not the proper basis of liability and it was abandoned by the plaintiff subsequently. The action had been settled against the first defendant and discontinued against the second defendant at the time of this offer. It could only have been accepted therefore by the third and fourth defendants paying the whole $40m. There was certainly no prospect of the first and second defendants or even the first defendant only being parties to any further payment.

[24] As was recognised by the plaintiff's solicitors, there were problems in fashioning an order which fitted comfortably within the parameters of O 26 r 10 (even allowing for the misconception about joint liability between the defendants) in light of the settlement and discontinuance. It was, nonetheless, open to the plaintiff to specify the amount (even if nil) which each defendant was required to pay to settle the action and O 26 r 10(2)(a) does not, on its face, preclude such a course although, admittedly, it would be unusual where joint or joint and several liability is alleged.

[25] The other course would have been for the plaintiff to write a Calderbank letter (Calderbank v Calderbank [1976] Fam 93) of offer to each defendant ensuring that it followed the requirements of O 26 r 10 as nearly as possible. The offer to settle contained in the notice of 9 April, in effect, required the third and fourth defendants to pay $40m. The judgment for approximately $28m in favour of the plaintiff against the third defendant is not a judgment which is no less favourable than the offer to settle. There is no good reason to award indemnity costs in respect of that offer.

[26] The offer of settlement of 21 May 1999 was expressly not made pursuant to O 26 of the Rules of the Supreme Court. The plaintiff obtained a more favourable judgment against the third defendant than contained in the offer, but nevertheless, there is one factor which operates strongly against allowing indemnity costs from that date. The offer was effectively open for one working day, Monday 24 May. The litigation was being conducted by the third and fourth defendants' insurer. The offer involved a large sum, albeit, significantly less than the $62.5m then claimed and the $40m offer of 9 April, but still in a sum which it might be expected would require considered advice. In my view it was unreasonable to expect the third and fourth defendants to have been in a position to respond positively to that offer by its expiry time at 9.30am on Tuesday 25 May.

[27] The plaintiff makes the point that the third defendant could have made an offer itself in terms of the expired offer at any time after 25 May and that it did not indicates that any longer time for consideration would not have been used to accept the offer. That, I think, is not to the point although I accept that undue technicality ought not be introduced to defeat a well-founded offer of settlement.

[28] There is a conflict of authority in Australia as to the proper approach which should be taken to Calderbank type offers of settlement. The decision of Rolfe J in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 represents "the high water of decisions in Australian courts, Pirrotta v Citibank Ltd (1998) 72 SASR 259 per Debelle J at 267, but has its supporters, MT Associates Pty Ltd v Aqua-Max Pty Ltd unreported decision of Gillard J of 3 May 2000 (BC 200002334). Rolfe J had held at 451 that

"... the proper approach to take to an offer of compromise, whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer."

[29] The other approach favours the view that "the writing of a Calderbank letter should be one of the factors, albeit a significant factor, to be weighed by a court when considering whether to order indemnity costs. . . . the complexity of litigation standing alone should not necessarily preclude the operation of the rule. The rule is designed to promote settlement of both complex and straightforward litigation and the court will have regard to all relevant circumstances in determining whether the penalty rule as to costs should apply", Pirrotta at 267 per Debelle J. His Honour reviewed extensively the authorities on the various approaches to this question at pp 262 et seq and there is no need to review them again.

[30] Although the rules differ between jurisdictions, the principles are similar and the reasons for their inclusion the same, namely, to encourage settlement for the purpose of saving both the public and private costs associated with litigation by the indemnification of the plaintiff where it makes an offer to settle and by awarding standard costs to a defendant who has made an offer to settle which the plaintiff does not better on judgment.

[31] I would favour the approach expressed by the Full Court of the Supreme Court of South Australia in Pirrotta, that is, that the writing of a Calderbank letter is a significant factor to be taken into account when considering whether to order indemnity costs. I also agree with the observation that it is undesirable, in a general way, to permit a regime which differs in important respects from that contemplated by the rules of court and imposes more onerous obligations, see p 267. The extent to which such a letter of offer departs from the regime envisaged by the rules against the particular facts of each case will often determine whether it is appropriate in all the circumstances to make an order for costs on an indemnity basis. It may well be that in practical terms there will be little difference in the outcome whichever approach is taken save that on the Multicon view it will be for the opposing party to argue against the making of such an order.

[32] In my view it was unreasonable to expect the third and fourth defendants to respond to the offer made on 21 May in such a short period. The litigation was complex and difficult. The plaintiff had completed most of its case, subject to further financial evidence, and the third and fourth defendants' case had been opened and the fourth defendant, who was the principal witness for the third and fourth defendants, had commenced giving evidence. Although the nature of the cross-examination of the fourth defendant could be anticipated because of the extensive public examination which had taken place several years previously which tended to suggest negligence on his part, there were many other issues, as can be seen from the reasons (and the grounds of appeal), which not unreasonably would suggest to the third and fourth defendants that the outcome of the action was far from clear. The Full Court in Pirrotta thought an offer which was open for 14 days (against a period of 21 days provided for in the South Australian rules) in a complex case did not allow sufficient time in which to consider the offer. In my view the offer contained in the letter of 21 May 1999 does not provide sufficient reason to depart from the usual costs order that the costs be paid on standard basis.

[33] The third defendant concedes that the plaintiff is entitled to an order for costs on a standard basis since the plaintiff has been successful in the action. However it argues that it should not be burdened with the plaintiff's costs other than to the extent necessary to enable the plaintiff to recover those items of costs incurred by the plaintiff with respect to work done solely for the purpose of advancing the plaintiff's claim against the third defendant and one-half of what the third defendant describes as "general costs". This, it submits, is to take account of the fact that there were originally four defendants. The trial proceeded against three defendants as to quantum and two defendants as to liability. Although the trial proceeded against three defendants as to quantum there was no evidence called by the plaintiff or the first defendant which related solely to the issue between them as to quantum. The quantum was worked out after the finding of the "proper" valuation of The Myer Centre had been made. As will be mentioned later, the third and fourth defendants had the same representation and conducted the same defence save for the very minor matter (although decisive) of the personal responsibility of the fourth defendant. It is not, in any event, easy to identify what the third defendant means when it refers to "general costs of and incidental to the proceedings". I am not prepared to limit the plaintiff's costs against the third defendant in that way and would order that the third defendant pay the plaintiff's costs of the action.

[34] It is argued on behalf of the fourth defendant that he ought to have his costs since he was ultimately successful in having the action against him dismissed. Rule 689(1) of the UCPR provides

"Cost of a proceeding are in the discretion of the court but follow the event, unless the court considers another order is more appropriate."

[35] The plaintiff submits that another order is more appropriate submitting that either the costs of separate questions should be ordered in favour of the successful party on those questions or that there should be no order as to costs of the proceeding between the plaintiff and the fourth defendant. There is jurisdiction to deprive a successful defendant of his costs, Verner Trading Pty Ltd v New India Assurance Co Ltd [1991] VicRp 12; [1991] 1 VR 129 at 151-5; and Commissioner of Main Roads v Sherry [1964] Qd R 388. Although the rules do not now include a provision like O 91 r 3 of the Rules of the Supreme Court there is retained in the court the power to order the costs on the basis of the outcome of separate issues although the exclusion from r 689 of the earlier provision suggests a reflection of the general caution which has been accorded to that approach to costs, Cretazzo v Lombardi (1975) 13 SASR 4 and Hughes v Western Australian Cricket Association (1986) ATPR 40-748 at 48,136.

[36] The basis upon which the fourth defendant was found not liable to the plaintiff was a finding that he had not assumed personal responsibility for the third defendant's valuation which he had carried out. The fourth defendant's defence was conducted jointly with the third defendant through the same solicitors and counsel for the entire proceedings. It is not possible to identify in any commonsense way any separate costs which might have been incurred by the fourth defendant in respect of his defence over and above those which were incurred by the third defendant. Nothing has been put before the court which would suggest that the fourth defendant has any personal responsibility for the costs incurred in the conduct of the defence. It is common knowledge that an insurer has conducted the proceedings of behalf of the third and fourth defendants.

[37] I am of the view that some other order than that the costs should follow the event should be made in the case of the fourth defendant. Recent examples where that has occurred in circumstances where there was joint representation and where the "successful" party would have had to give evidence whether or not he had been a party are Bamco Villa Pty Ltd v Montedeen Pty Ltd unreported decision of Hansen J of 16 March 1998 (BC 9800837); and Brimaud v Boston Securities Entertainment Investments Pty Ltd unreported decision of Emmett J of 9 October 1998 (BC 9805831). The order which I would make is that there be no order as to costs between the plaintiff and the fourth defendant.

[38] Mr G Robinson appeared for the first and second defendants on the costs hearing to seek an order that the third defendant pay the first and second defendants' costs of defending the contribution proceedings which were discontinued when the plaintiff no longer pursued its case against the defendants on a joint and several basis. The third and fourth defendants submit that there should be no order as to costs in those proceedings between the two groups of defendants or, that if ordered to pay the first and second defendants' costs that they should be indemnified by the plaintiff. This is because the contribution proceedings were only instituted by the third and fourth defendants after the plaintiff erroneously, as it emerged, pleaded joint and several liability against the defendants, The Theodoros: The Blidensel [1923] P 26 at 30.

[39] The plaintiff resists such a "Bullock" type order on the ground that the contribution proceedings were separate and no concern of the plaintiff. Mr Robinson submitted in response to the third and fourth defendants' submissions that no new issues were raised by the contribution proceedings which would call for a separate order as to their costs, that there were "significant costs involved" without any particulars. From time to time there were occasional appearances by counsel - Mr J McKenna - on behalf of the first and second defendants. He otherwise appeared in the plaintiff's case. So far as the trial was concerned there were no separate issues advanced referable to the contribution proceedings. The third and fourth defendants reacted responsively to the plaintiff's claim by issuing contribution proceedings. It was not for them to anticipate that the allegation of joint liability would be abandoned by the plaintiff. There are likely to be some costs associated with the first and second defendants' response to the contribution proceedings and they ought not be required to bear those costs. In the circumstances neither should the third defendant. The third defendant should pay the first and second defendants' costs of and incidental to the contribution proceedings and the third defendant should be indemnified as to those costs by the plaintiff.

[40] The parties have reached agreement generally on the costs which have been reserved in the course of the action, namely, that they should follow the event. The third defendant does not oppose an order that it pay on a standard basis the plaintiff's costs in respect of the following additional reserved costs orders:

* Muir J on 15 September 1998; * White J on 8 March 1999; * Mackenzie J on 9 April 1999; * White J on 1 June 1999 with respect to the subpoena issued to Mr Kernke.

[41] Costs were reserved on 1 June 1999 relating to Mr Norris. The plaintiff accepts that there should be no order as to costs in respect of that application.

[42] The Court of Appeal made certain costs orders on 16 June 1997 (exhibit 1 on this costs application) in respect of a stay arising on an appeal from an interlocutory order in the trial division joining FAI as a defendant. The costs of the application of the third and fourth defendants were reserved. The plaintiff accepts that it ought to pay those costs.

[43] Finally there was an order made by Byrne J on 13 June 1997 concerning the joinder of FAI. The endorsement on the file indicates that the application was adjourned to a date to be fixed and that costs were reserved. It was an application for a stay which should have been made to the Court of Appeal. The parties do not disagree that in those circumstances the appropriate order is that there be no order as to costs.

Costs Orders 1. The third defendant pay the plaintiff's costs of and incidental to the proceedings against the third defendant to be assessed on a standard basis including reserved costs except as follows: 1.1 There be no order as to costs relating to the application made 1 June 1999 concerning Mr Norris. 1.2 There be no order as to costs relating to the appearance and application before Byrne J on 13 June 1997. 1.3 The plaintiff pay the costs of the third and fourth defendants reserved by the Court of Appeal on 16 June 1999 to be assessed. 2. There be no order as to the costs of the fourth defendant. 3. The third defendant pay the first and second defendants' costs of and incidental to the contribution proceedings to be assessed and the plaintiff indemnify the third defendant in respect of those costs.

[44] The plaintiff seeks to have the court vary the order which was made effective from 18 April 2000 giving judgment, inter alia, against the third defendant for approximately $28m. The UCPR in r 667 permits a court to vary an order in certain circumstances and those circumstances have been met. The plaintiff seeks to vary paragraph 2 of that order by adding the following declaratory relief

"I declare that if Commissioner of Taxation seeks remittance from the plaintiff of, or otherwise holds the plaintiff liable to pay, any GST as defined in A New Tax System (Goods and Services) Tax 1999 (Cth) in relation to any and all sums and benefits (whether monetary or otherwise) (`the Benefits') whatsoever awarded to the plaintiff under this judgment, then

(i) the plaintiff is entitled to be indemnified for any Goods and Services Tax for which it is liable to pay to the Commissioner of Taxation; and

(ii) the plaintiff is entitled to be indemnified for all costs and expenses on a solicitor and own client basis in the proper defence of any claim for the payment of any Goods and Services tax in respect of the Benefits."

[45] The obligation to pay Goods and Services Tax (GST) becomes effective from 1 July 2000. There is presently an informal stay in place in respect of the judgment sum. The plaintiff has been unable to secure any ruling from the Australian Tax Office as to whether there will be any liability to pay GST on the judgment sum if paid in whole or in part after 1 July 2000. An appeal will be heard in respect of the judgment in the action and ancillary judgments in the Court of Appeal at some unspecified time.

[46] The plaintiff submits that on the proper construction of the present legislation imposing a GST, A New Tax System (Goods and Services Tax) Act 1999 (the ANTS Act) in certain circumstances GST may be payable on a judgment sum. There are no provisions in the GST legislation dealing expressly with judgment debts that do not arise from liabilities covered by insurance policies.

[47] The plaintiff relies upon Tuite & Anor v Exelby (1992) 93 ATC 4293 where Shepherdson J provided for a sum for capital gains tax which might be payable on his judgment. However on appeal it was conceded that it could not be justified and the judgment was accordingly reduced, Exelby v Tuite unreported decision of 28 November 1994 (BC 9404190).

[48] The plaintiff also relies upon the judgment of Rolfe J in Provan v HCL Real Estate Limited (1992) 92 ATC 4644 where his Honour made a declaration that the defendant indemnify the plaintiff in respect of any liability to pay capital gains tax on the judgment. In the course of his reasons his Honour noted that the capital gains tax was liable to be paid because of the negligence of the defendants. Mulligan J took a similar approach in Duke Group Ltd (in liq) v Pilmer [1998] SASC 6529; (1998) 144 FLR 1 and concluded that the liability to pay capital gains tax was a real possibility and formed part of the plaintiff's damages. The plaintiff submits that but for the negligence of the defendants any payments pursuant to the Development Agreement would have been made long before the imposition of a GST was contemplated.

[49] In Carborundum Realty v RAIA Arcicentre Pty Ltd (1993) ATC 4418 Harper J distinguished Provan's case on the basis that the liability to pay capital gains tax on the transaction arose, if it arose at all, because of the defendants' breach.

[50] The damages which are now sought to be included in the judgment were not pleaded nor made an issue in the trial. It is not the case that this new tax has recently come into the Australian community. Its imposition was made clear, at least from the commencement of the trial, and there was ample opportunity to formulate such a head of damage and to deal with it in a timely and appropriate manner. In Carborundum after Harper J had delivered judgment the plaintiff sought to amend its statement of claim to include as a head of damages an award to compensate the plaintiff in respect of its liability to capital gains tax under the Income Tax Assessment Act. Alternatively it sought a declaration that if found liable it was entitled to be indemnified by the defendants. The plaintiff in that case did have a private ruling from the Australian Tax Office to the effect that any damages awarded would be considered a capital gain assessable to the plaintiff pursuant to the Income Tax Assessment Act. Harper J was of a contrary view and also concluded that such a head of damage was too remote a consequence of the breach of the subject contract and would also be too remote for an action in negligence. Neither was his Honour attracted to a course which left the judgment inconclusive or incomplete.

[51] There are other issues which would need to be examined, for example, the net effect of other tax payments and whether or not the plaintiff had a threshold turnover in order to raise the potential of a GST liability. There must be some foundation in law for requiring the third defendant to indemnify the plaintiff for any liability for GST. It must arise as a consequence of the negligence of the third defendant and the plaintiff has failed to advance any argument to support this. There is no apparent recognition of the limiting effect of remoteness of damage. On any view, the potential liability to pay GST was not reasonably foreseeable at the time when the breach occurred. These uncertainties are sufficient to refuse the relief sought but I will make some brief comment on the legislation.

[52] The central provision of the legislative scheme is that GST is payable on taxable supplies (s 7-1). A supply includes

* a supply of goods; services; * a provision of advice or information; * a grant, assignment or surrender of real property; * a creation, grant, transfer, assignment or surrender of any right; * a financial supply; * an entry into or release from an obligation; * any combination of those matters. A supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money (s 9-10(4)).

[53] It is not easy to see how a court giving judgment or the payment of a judgment sum or the granting of a stay of execution could constitute a "supply" within the meaning of those expressions.

[54] A taxable supply is made if the supply is made for consideration (s 9-5(a)). Consideration includes matters done pursuant to orders of a court (s 9-15(2A)(a)) but that does not of itself constitute a supply. The receipt of payment by a judgment creditor does not obviously involve the creation, grant, transfer, assignment or surrender of any right or the entry or release from an obligation (s 9-10(2)(e)(f)). When the judgment is satisfied the debt created by the judgment is thereby extinguished and does not depend on the surrender of any rights or the release of the judgment debtor.

[55] The provisions relating to payments by insurers in settlement of claims are set out in s 78 which exempt a payment made in the settlement of a claim under an insurance policy and may apply here should there be held to be a supply by the payment of the judgment.

[56] Further the settlement of an insurance claim is not a taxable supply to the extent that the event giving rise to the claim happened prior to 1 July 2000 (s 22 of the Goods and Services Transition Act 1999).

[57] It seems unlikely that the payment of interest on the judgment pursuant to the Supreme Court Act 1995 could be described as consideration for a "right or option to acquire a thing ... granted" and does not readily fall within the definition of consideration in s 9-15(3).

[58] Accordingly, for a number of reasons, I am not persuaded that the order sought to be varied should be made. The application is very late. It could have been claimed by amendment to the pleadings or raised in the course of the trial after the nature of the tax was revealed by the Australian Tax Office, or at some other reasonable time to enable it to be fully explored. There is no basis for such a head of damage being recovered from the third defendant. It is too remote a consequence of the negligence of the third and fourth defendants. The uncertainty surrounding the quantum of tax means that the third defendant would be unable finally to settle this matter. Finally, I am not persuaded that there is any potential liability for GST.

[59] I decline to make the orders sought in the application including the declaration. The plaintiff should pay the third defendant's costs of this application.