Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd

Re-opening - the Health District's submissions

1. The Health District submitted that leave was not necessary to re-open the 2017 hearing, however made submissions in the alternative if that were incorrect.
2. The Health District's submissions that leave is not required to re-open the 2017 hearing can be summarised as: 1. The question of interest and whether or not is should be grossed up has not been the subject of determination by the Court and was not considered by the Tax Judgment. The Issue is framed as whether the declaration at [132] of the Tax Judgment extends to interest. As such, no question of re-opening arises and leave is not required to resolve the Issue. The question for the Court to determine is whether the declaration in the Tax Judgment extends to interest on the principal amount for damages and it is a matter of construction of the draft order. Therefore, no re-opening is required. 2. In the Tax Judgment, the Court did not distinguish between the principal amount and any interest on the principal amount. This is because the Issue was not raised during the 2017 hearing. No written submissions were made in relation to the Issue, which supports the proposition that the Issue was not before the Court during the 2017 hearing and therefore was not determined. 3. Macquarie only made one brief oral submission relating to the Issue over the course of a three-day hearing (see paragraph [19] below). This submission was not referred to in the Tax Judgment. Furthermore, the oral submission made by Macquarie was not expanded upon in written submissions, despite written submissions following the 2017 hearing being very extensive. 4. Had the Issue been a live question during the 2017 hearing, given the amount of money at stake and the history of this case, it can be assumed that both sides would have made extensive submissions on the Issue. The lack of any submissions and the absence of consideration of the Issue in the Tax Judgment expressly suggest that it was not the subject of the 2017 hearing.
3. Therefore, it was submitted that because the Issue is whether the indemnity referred to in the Declaration extends to interest, and the Issue has not been resolved, no re-opening is necessary and leave is not required.
4. Should the Court find that it is necessary to re-open 2017 hearing and leave is required to do so, leave should be granted to the Health District for the following reasons: 1. Re-opening would not be reviewing or re-hearing an argument because it was not previously raised in any meaningful or substantive way. The Issue was not raised or previously decided, so there can be no re-agitation of any argument. 2. The Health District is not raising a new argument, rather it is responding to an argument advanced by Macquarie. 3. There has been no argument on the question of grossing up interest at all. It was mentioned in passing in one oral submission during a three-day hearing. Re-opening to allow the Issue to be ventilated would be to afford the Health District procedural fairness to address an important matter with significant consequences. The Issue has not been decided and therefore there is no attempt by the Health District in effect to appeal against a decision that was adverse to it.
5. Therefore, it was submitted that should leave be required to re-open, the Health District should be granted that leave to be given the opportunity to argue the Issue.

Re-opening - Macquarie's submissions

1. Macquarie's submissions may be summarised as follows.
2. Macquarie submitted that it was the Health District which required leave to re-open its case and leave should not be granted.
3. Where there has been a determination of liability, a party is bound by its conduct of the case in the hearing on liability and should not be permitted to raise a new argument which it failed to put during that hearing and had the opportunity to do so. Given the way the Health District ran their case, they have been found liable. Only in exceptional circumstances is it appropriate for the Court to grant a party leave to re-open a case. Consequently, the Health District should be bound by the Court's determination and should not be allowed to have a second opportunity to argue an issue which has already been determined.
4. The Court was aware of the Issue at the time of the 2017 hearing. The following exchange occurred between the bench and Senior Counsel for Macquarie (T128:27-139:10): "HIS HONOUR: Yes. Can I link that back to the second point in the headnote about some of the items not being taxable in the hands of the plaintiff? Does that engage an issue - and if it does - is it an issue I have to decide about the treatment of the interest on the damages? Because I think there was a-- RICHMOND: Yes. HIS HONOUR: There was a difference between the experts. Well, that's not true. I think Mr Coleman said it's a matter for the tax experts this question of does any gross up include interest payable as to the court interest rate? RICHMOND: We do have to deal with that but I might deal with that as a separate matter - … HIS HONOUR: I guess the first question is: are the parties in dispute about how the statutory interest fits into this? RICHMOND: I think it will become clear when Mr Jackman makes submissions. Perhaps I can just put to you what we say which is that the interest forms an integral part of the compensation provided because what it's doing is compensating the plaintiff for non‑receipt of the 15 annual instalments of rent when they would have fallen due under the notional lease and it's simply part of the mechanism to compensate the plaintiff for not having that rent when it fell due in the notional world that we're in, the fact that the trespass that occurred and so it forms an integral part of the judgment sum and that will be taxable in the same way as the balance of the amount is taxable, that is to say, under which CGT event so it will be taxable and the same reason for grossing up applies to that portion as does to the other portion, we would say. It shouldn't be treated differently. I'm not sure if we're in agreement about that or not."
5. The Health District did not respond to this submission made by Macquarie. Instead, the Health District submitted grossing up was only applicable when damages are awarded for the purpose of compensation in what was described as the "true or strict sense of putting the plaintiff in the position that it would have been in if the wrongful conduct had not occurred". It was submitted that this was not such a case. The Health District did not make an alternative submission about the grossing up of interest against the possibility that its primary position (that grossing up was not available at all) was not accepted by the Court.
6. The submissions the Health District now wishes to make could have been made in the 2017 hearing. Its failure to make the submissions then binds the Health District from making them now. The Health District made a strategic decision not to raise the question of interest and they should be bound by that decision.

Re-opening the Issue - resolution

1. The Court has determined that leave is not required for either party to raise the substantive arguments which have now been presented. That decision is based on my acceptance of the substance of the submissions made by the Health District as to why no question of re-opening arises (see paragraphs [12] to [13] above).
2. While I accept the substance of those submissions, I express my reasons in different terms. In my respectful opinion, the preferable analysis is: 1. The Court has been invited to make the Declaration. 2. Neither the Declaration nor any final order disposing of the proceedings has been made. 3. While the parties agreed that if the Court answered the question posed in the Tax Judgment in the affirmative then the Court should make the Declaration, I do not understand the Declaration strictly to be a consent order. But whether it is a consent order or not, it remains a matter for the Court to determine whether an order should be made and, if so, what the terms of the order should be. The Court is not always bound to make orders even if they are consented to by the parties (see UCPR Part 36 r 36.1A and Kalyk v Whelan (unreported, New South Wales Supreme Court, Young J (as his Honour then was), 31 July 1985)). Furthermore, in the case of a declaration by consent, the better view is that, in general, the Court should be satisfied by reference to evidence or some other reliable basis (for example, after addresses by counsel) that there is a proper basis for the declaration to be made: Ajkay v Hickey & Co Pty Ltd [2011] NSWSC 822; P W Young, Declaratory Orders, Butterworths, 1975 at [910]. 4. The Court's fundamental obligation is to make such orders as are necessary "so that, as far as possible, all matters in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of those matters avoided": s 63, Supreme Court Act 1970 (NSW). To make an order which contains an ambiguity would be inimical to the fulfilment of that obligation. 5. Although addressed very briefly by Macquarie in oral submissions, the question of whether the interest that may be allowed on a damages award should be grossed up for tax was not squarely before the Court at the 2017 hearing. That hearing was directed to whether the damages could be grossed up, not the interest on those damages. 6. Until the hearing on 2 September 2019 and the submissions subsequently received pursuant to the Court's directions, the issue of grossing up the interest on a damages award had not been: 1. clearly presented by the parties for determination; 2. the subject of fully developed submissions (no disrespect is intended thereby to what was put by Mr Richmond SC recorded in paragraph [19] above); 3. determined by the Court. 1. The fact that the Declaration has not been made has these particular consequences. The Court is not being asked to construe or vary an order that has been made. Nor is the Court engaged in the task of construing what the parties' agreement as to what the Declaration should be or mean. The question is what are the terms of the declaratory order that the Court should, in the exercise of its discretion, make? That was not the subject of argument at the 2017 hearing. Nor was the particular legal issue (whether interest should be grossed up), which it is now necessary for the Court to determine in order to be satisfied as to the terms of the order to be made.
3. If the analysis I have set out in the previous paragraph is wrong and leave to re-open the 2017 hearing is required, then I would have granted that leave to the Health District for the reasons it advanced set out in paragraph [14] above. I would have been fortified to do so by the fact that Macquarie did not identify any particular prejudice it would suffer if leave to re-open were granted, particularly in circumstances when at least one other outstanding issue meant final orders could not be made at the hearing on 2 September 2019.

The Issue - the Health District's submissions

1. The Health District submitted that the indemnity referred to in paragraph [132] of the Tax Judgment did not extend to interest on the principal sum for mesne profits damages awarded to Macquarie for two reasons: 1. When properly construed, the Declaration does not concern interest payable on the principal amount of damages to be awarded to Macquarie; and 2. Interest payable on an award for mesne profits ought not be grossed up for taxation because it serves a different purpose compared to an award of damages. Although I have taken the view that this is not a case of the Court construing the Declaration but rather considering the fundamental legal question, I will set out in the Health District's submissions on construction because they to some extent also inform the submissions on the legal question.

Construction of the declaration

1. Paragraph [137] of the Principal Judgment noted "unless the meaning is clear from the actual terms of the judgment or order" in construing its meaning "the Court may have regard to the reasons given for that order, surrounding circumstances and extrinsic evidence relied upon by the Court so as to place the order in the context of the matter".
2. As stated in paragraph [132] of the Tax Judgment, the Health District agreed to indemnify Macquarie in respect of tax referable to "the judgment sum for mesne profits damages" "awarded to [Macquarie] for [the Health District]'s trespass on the Hospital Site".
3. The judgment sum for mesne profits damages for the Hospital Site comprises of the principal to be awarded for the trespass committed by the Health District. This does not include the interest thereon. Interest is calculated by reference to the principal; it does not form part of the principal. They are two separate amounts and should be treated as such. Had the indemnity been intended to extend to any interest payable by the Health District, the Declaration would have been drafted accordingly to include interest expressly. Instead, the indemnity only covers the damages awarded for the trespass, which is a separate amount from the interest thereon. The Declaration is silent on the question of interest.
4. Furthermore, the question before the Court for the Tax Judgment was in the following terms: "Are Macquarie's damages in relation to the Hospital Site of a kind which can be grossed up for taxation?" The absence of any question dealing with whether interest can also be grossed up suggests the Court did not determine the Issue.
5. More generally, the purpose of interest is to compensate an innocent party who is being awarded damages and there has been a delay in that party receiving the principal sum. The Health District drew attention to the recent observation of the plurality of the High Court in Northern Territory v Mr A Griffiths (decd) and Lorraine Jones obh of Ngaliwurru and Nungali Peoples [2019] HCA 7 at [150]; (2019) 364 ALR 208 ("Griffiths") (citations omitted) (emphases added): "As has now been seen, however, although those Justices who comprised the majorities in Huon Transport and Marine Board did not agree as to whether interest allowed to a claimant for being kept out of compensation is part of that compensation or rather interest on it for being kept out of it - and adding in the views of the dissentients on the point does not produce a majority - the clear balance of persuasion lay with the view that such interest is not part of the compensation for [the act as a result of which the plaintiff has suffered loss] but a separate compensation for being kept out of the money. And as a matter of principle, there is no reason to doubt that is so. To adopt and adapt the observation of Lord Sumner in Swift, an award of interest in the present proceedings is not compensation for the extinguishment of native title but, consistent with the legislative scheme for the establishment and extinguishment of, and compensation for, native title that is set up by the Native Title Act, is compensation for being kept out of that amount which the Claim Group should have received at the time of extinguishment."
6. There is nothing to suggest this determination should be limited to compensation arising solely out of the Native Title Act 1993 (Cth) (the "NTA"). This is particularly apparent when the plurality cites Lord Sumner in Swift & Co v Board of Trade [1925] AC 520, a case which did not relate to native title.
7. The Health District submitted that Griffiths confirms any interest payable on the principal is to account for the fact that Macquarie has been kept out of its money, rather than to compensate for the trespass. This directly contradicts Macquarie's submission on 10 May 2017 that "interest forms an integral part of the compensation provided" (see paragraph [19] above).
8. Furthermore, the Civil Procedure Act 2005 (NSW) (the "CPA") reflects the distinction between damages and interest. "Costs" and "Payment of interest" are dealt with in two separate divisions of the CPA. The award of interest is discretionary pursuant to s 100 of the CPA. As such, it should not be assumed that there was any intention that the "judgment sum for mesne profits damages" included an interest component. The fact that the Court may include interest in "the amount" for which judgment is given does not mean that the components making up that sum or amount lose their fundamental character of principal and interest.
9. This distinction between damages and interest was not abandoned in Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60 ("Haines") where it was held that interest was to compensate the plaintiff for having been kept from his or her money.
10. Therefore, it was submitted that the Declaration should be construed to only gross up for the principal to be awarded, and not the interest thereon.

Interest is not liable to be grossed up for taxation

1. The Health District further submitted that even if its construction argument fails, interest should not be grossed up to take account of any tax which may be payable by Macquarie on that interest. In contending for that proposition, the Health District relied on observations I made throughout the Tax Judgment. The crux of those observations is that damages are compensatory, and in determining damages, "it will always involve keeping in mind the compensatory purpose of damages" (at [90] of the Tax Judgment).
2. If it were accepted that any interest awarded on the principal sum were to be assessed as ordinary income and taxed accordingly, it does not follow that the Court should gross up interest. The purpose of interest is to compensate Macquarie for being kept out of its money, not to compensate for the damage suffered. This is supported by the High Court's decision in Griffiths.
3. Moreover, should the interest payable be grossed up for tax purposes, this would result in an unjust outcome and Macquarie being overcompensated. Macquarie would be relieved of its ordinary tax obligations, which it would have had in any event. As was observed in the Principal Judgment, overcompensation for the wrongful use that occurred must be avoided.
4. The fact that Macquarie is a business amplifies the argument that interest should not be grossed up. It is reasonable to assume that if mesne profits were awarded at the time the cause of action arose, it would have been spent with the intention of making profits. This would have been of an income nature, and so any interest awarded would also have that character. Macquarie would have been taxed accordingly.
5. There has been no suggestion that the award of interest is to be characterised as income. However, even if that were the case, there is nothing to suggest an award of interest would be capital in nature, as opposed to income. As Black CJ observed in Whitaker v Federal Commissioner of Taxation (1998) 82 FCR 261 at 264, "the characterisation of an amount ordered to be paid as "interest" as compensation for the loss or detriment suffered by a person by being kept out of his or her money would point to an amount receivable as income rather than as capital."
6. With one exception, there have been no other cases where interest has been grossed up for taxation. The Health District submitted that McMurdo P had held in Westpac Banking Corporation v Jamieson [2015] QCA 50 at [6]; (2015) 104 ACSR 657 ("Jamieson") that "in order to properly compensate [the plaintiff]" it was "necessary" to gross up "the entire award of damages other than interest". Morrison JA agreed with her Honour at [24]. Jamieson dealt with compensation in a strict sense and should therefore be followed by me as a decision of an intermediate appellate court on the common law of Australia: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 at [135]; (2007) 230 CLR 89.
7. Reliance was also placed on the similar conclusion of McMeekin J in Mulvaney Holdings Pty Ltd v Thorne (No 2) [2012] QSC 146 ("Mulvaney"), where the plaintiff was awarded compensation, together with interest, and it was determined that interest was of a different character to the principal, and to gross up interest would not be fair to the defendant. There is every reason to think that Macquarie, a large commercial enterprise, would have deployed the money it received in profit-making endeavours. As such, it is appropriate to apply Mulvaney to the case at bar.
8. The exception referred to in paragraph [41] above is a judgment of the District Court of South Australia, Jackson v Abram (unreported, District Court of South Australia, No 2323/2011, 24 September 2014) in which an award of interest was grossed up to account for taxation. The decision was appealed to the Full Court of the Supreme Court of South Australia, however the appeal did not address the issue of grossing up for taxation.
9. Therefore, as is consistent with all but one case, it is inappropriate to gross up the interest payable for taxation purposes.

The Issue - Macquarie's submissions

1. Should the Health District be allowed to re-open its case, Macquarie made five submissions about the Issue. They can be summarised as: 1. Damages for the defendant's trespass on the Hospital Site "calculated in accordance with the user principle are nonetheless compensatory in character" ([129] of the Tax Judgment). Compensation is therefore the touchstone for the award of damages to Macquarie for the trespass. That compensation is made up of both the principal amount and interest on that amount. This is one amount of money to be paid and should be characterised as the same. There is no authority which deals with grossing up of an award for mesne profits damages or the treatment of interest with respect for such an award. Finding that mesne profits are compensatory should therefore guide how the Issue is to be determined. 2. Any submission that interest is characterised as income, rather than part of the principal amount, is flawed. The Tax Judgment observed at [129] that the "parties accept that it is arguable that the damages will be subject to taxation, more probably under the capital gains tax ("CGT") regime rather than as income." 3. The Health District's reliance on Griffiths is misconceived. The issue in Griffiths was noted at [108]: "It was common ground that interest should be awarded on the economic value of the extinguished native title rights and interests in order to reflect the time between when the entitlement to compensation arose and the date of judgment, and that the function of such an award is to compensate a party for the loss suffered by being kept out of his or her money during that period. The issue was whether the interest should be calculated on a simple basis or compound basis and, if on a compound basis, at what rate it should be compounded." Furthermore, any findings made by the High Court in Griffiths in relation to awarding interest as part of compensation should be confined to the specific statutory context of the NTA. 1. Section 100(1) of the CPA provides: "… In proceedings for the recovery of money (including…damages…), the court may include interest in the amount for which judgment is given the interest to be calculated at such rate as the Court thinks fit: (a) on the whole or any part of the money; and (b) for the whole or any part of the period from the time the cause of action arose until the judgment takes effect." Section 100(1) does not treat interest as a separate component of the amount for which judgment is given. It is one amount that is awarded, suggesting a distinction should not be made between the principal and interest. 1. McMeekin J's observations in Mulvaney need to be read in context. The award was in respect to the loss of funds invested in the defendant's business by the first plaintiff and not taxable in the plaintiff's hands. McMeekin J was considering a different factual scenario to the award of a judgment of mesne profits damages for trespass and as such, his Honour's analysis should not be applied in the present case. The purpose of the damages in this case is to compensate Macquarie. This compensation is the cost to Macquarie of being kept out of each annuity at the time it arose. Where it is accepted that the award is more probably to be taxed as capital, as the Tax Judgment noted "justice in this case requires that taxation be taken into account in the amount of the award." This suggests that because the interest component of the damages could be caught up in taxing provisions, there is no reason to regard interest on the principal amount to be something other than damages and for it to be treated differently by excluding it from grossing up for tax.

The Issue - resolution

1. Considering the question not as an issue of construction but rather as a matter of first principles, in my view interest on the mesne profits awarded to Macquarie should not be grossed up for tax and the Declaration should be amended to remove any ambiguity about that point. To that end, the order which the Court will make based on the Declaration will include after the words "mesne profits damages" the words "(but excluding, for the avoidance of doubt, any interest included in that amount under s 100 of the Civil Procedure Act 2005 (NSW))".
2. The reasons for that conclusion are: 1. The parties have been unable to find any authority which has previously considered whether interest on an award of mesne profits damages should be grossed up for tax. The question therefore turns on the application of first principles. 2. While calculated on the user principle, an award of mesne profits is nevertheless fundamentally compensatory in character: Principal Judgment at [170]. 3. While s 100 of the CPA speaks of "the amount for which judgment is given", the section draws a clear distinction between the "money" which expressly includes "damages" and the interest which is "included" "calculated at such rate as the court thinks fit on the whole or any part of the money". The two components, being the money recovered (in this case damages) and the interest calculated on that money, do not lose their character as such simply because the Court gives judgment for an amount which includes interest. The language "include interest" makes it clear that interest is something separate. 4. There can be no doubt that interest is awarded to compensate a successful party for being kept out of the money up to the date of judgment to which the Court has determined that party is entitled, being an amount which, as a matter of legal theory in most (but not all) cases, was payable as at the date the cause of action arose. 5. However, the character of the interest for the purposes of the grossing up inquiry requires a further explication of the concept of "compensation" in two respects. 6. First, notwithstanding the purpose set out in sub-paragraph (4), an award of interest in some cases can be part of the compensation for the wrong which has given rise to the entitlement to damages so that it can be said that the interest is "part of" the damages as opposed to calculated "on" the damages. 7. Second, where the interest is not "part of" the damages, it is nevertheless subject to the fundamental principle of compensatory damages that the plaintiff is to be put in the position they would have been in but for the wrong (even if the damages are the product of the user principle, which is nevertheless designed to produce compensation - see sub-paragraph (1)). In the case of a commercial enterprise the counterfactual is what would it have done with the damages if they had been received as at the date the cause of action arose. In the absence of the enterprise producing cogent evidence to the contrary, the Court will infer from the fact that the business is a commercial enterprise that the damages would have been used as part of the enterprise's activities to generate a profit which would have been taxable. On this basis the interest awarded on the damages should not be grossed up because to gross up would be to overcompensate the plaintiff by awarding an untaxed amount to compensate for being kept out of money that would have been applied to generate taxable profits. The successful plaintiff bears the onus to satisfy the Court why, in the circumstances of the particular case, the interest should be grossed up. 8. In the present case, the paradigm which was used to produce the mesne profits as damages was annual rent. There is no question of those damages including interest as part of the damages. The appropriate analogy for this case is an ordinary action for the recovery of rent where interest would be awarded under s 100 of the CPA calculated by reference to the period from when the rent fell due (which could be any period of time including annually) up to the date of judgment. For the purposes of the grossing up inquiry the amount of interest calculated will not lose the character of interest by being included in the final judgment amount. Macquarie has at all material times been a substantial commercial operator of private hospitals and has not sought to counter the inference the Court draws from that fact that if Macquarie had received the mesne profits when its cause of action arose, Macquarie would have applied those funds to its ordinary business endeavours with the intention of making a profit. The interest awarded by the Court on the mesne profits should therefore not be grossed up because to do otherwise would be to overcompensate Macquarie. Macquarie has not satisfied its onus to demonstrate why the interest should be grossed up.
3. The foregoing analysis derives from the authorities to which the parties variously referred the Court.
4. The nature of an award of interest under s 100 of the CPA was explained by the plurality in Haines (at 66), which considered that section's predecessor and explains both the purpose of the award and the distinction that interest is not awarded as compensation for the damage done (emphases added): "The power to award interest on damages for the period between the date when the cause of action arose and the date on which a judgment takes effect is conferred by s.94 of the Supreme Court Act. The section confers power on the Supreme Court to order that there shall be included, in the sum for which judgment is given, interest at such rate as it thinks fit on the whole or any part of the money between the date when the cause of action arose and the date when the judgment takes effect. An award of interest up to the date of judgment is an award of interest in the nature of damages: Fire and All Risks Insurance Co. Ltd., at p 431. This statement acknowledges that the award of interest is an integral element in the attainment of the object of damages, namely, to compensate a plaintiff for injury sustained. Hence the award of interest is compensatory in character. While "(i)nterest should not be awarded as compensation for the damage done" (emphasis added) (Jefford v. Gee (1970) 2 QB 130, at p 146), the award of interest is nevertheless an essential element in the achievement of true compensation for that damage. In Thompson v. Faraonio (1979) 54 ALJR 231, at p 233; 24 ALR 1, at p 7, the Privy Council stated that "(t)he reason for awarding interest is to compensate the plaintiff for having been kept out of money which theoretically was due to him at the date of his accident" (emphasis added). See also Batchelor v. Burke, per Gibbs C.J. at p 455; M.B.P (S.A.) Pty. Ltd. v. Gogic, at p 205; p 196 of ALR; cf. Ruby v. Marsh (1975) 132 CLR 642, per Barwick C.J. at pp 652-653. The award of interest for the period of delay in payment between the date of accrual of the cause of action and judgment affords the fair legal measure of compensation: Pheeney v. Doolan (1977) 1 NSWLR 601, per Reynolds J.A. at p 613. Thus, it is the award of damages and, where appropriate, interest awarded on damages for the period up until the judgment takes effect which allows the plaintiff to be placed in or restored to the situation, as far as money can do, in which he or she would have been but for the defendant's negligence."
5. Macquarie is perfectly correct that the discussion about interest in Griffiths is confined to the NTA. The plurality make that clear at [115] where they record that "In view of the Claim Group's submissions, s 51A [the equivalent to CPA s 100] has no direct application to these proceedings, for an award of compensation under the" NTA. Furthermore, it concerns compulsory acquisition not tortious damages. Nevertheless there is nothing inconsistent between how the plurality analyse the concept of compensation under the NTA (considering the law of compulsory acquisition) and the general law as set out in Haines. In Griffiths the Court considered the distinction which I have drawn in subparagraph [47(6)] above between interest being on or part of compensation and the plurality concluded: "As has now been seen, however, although those Justices who comprised the majorities in Huon Transport and Marine Board did not agree as to whether interest allowed to a claimant for being kept out of compensation is part of that compensation or rather interest on it for being kept out of it - and adding in the views of the dissentients on the point does not produce a majority - the clear balance of persuasion lay with the view that such interest is not part of the compensation for compulsory acquisition but a separate compensation for being kept out of the money. And as a matter of principle, there is no reason to doubt that is so. To adopt and adapt the observation of Lord Sumner in Swift, an award of interest in the present proceedings is not compensation for the extinguishment of native title but, consistent with the legislative scheme for the establishment and extinguishment of, and compensation for, native title that is set up by the Native Title Act, is compensation for being kept out of that amount which the Claim Group should have received at the time of extinguishment. Such a conclusion is consistent with, and indeed favoured by, the terms of s 51(1) of the Native Title Act, which refers to the entitlement to compensation under the Act as an "entitlement on just terms to compensate the native title holders for any loss, diminution, impairment or other effect of the act on their native title rights and interests."
6. Whitaker is authority for the proposition that pre-judgment interest awarded on damages for personal injuries does not have the character of income but was a receipt of a capital nature. There are two relevant passages in the judgment of Lockhart J (at 273-274), with whom Black CJ agreed, the second of which informs the proposition set out in subparagraph [47(7)] above: "Receiving compensation for the compulsory acquisition of a capital asset which would have been put to a revenue use is quite different from compensation for damages for personal injury. The latter is compensation for not having received damages when they should have been paid, where the plaintiff should not be treated as having invested the judgment monies in such a way as to earn taxable income. Interest is awarded in cases of this kind because the plaintiff has been deprived of the use of his money, not because he has foregone investment opportunity. … The views which I have expressed concern interest included in awards of damages in personal injury cases. The position would be different in some cases, especially where, for example, the claim is for loss of profits arising from a business in circumstances where it may be reasonably assumed that the award of damages, if available at the time of the accrual of the cause of action, would have been spent by the plaintiff for the derivation of further profits and this would be of an income nature, so would the interest."
7. The decision of the Queensland Court of Appeal in Jamieson does not have the precedential effect for which the Hospital District contends. The issue in that case related to grossing up the award for damages, not whether the interest component should be grossed up. The passages relied on by the Hospital District (see paragraph [41] above) refer to the treatment of interest as a matter of assumption or agreement rather than controversy.
8. Finally, I do not accept Macquarie's submission that the decision in Mulvaney is distinguishable. In any event, it is not suggested that I am bound by the decision. Nevertheless, I am fortified by it because, in my respectful opinion, its reasoning exemplifies the application of the basal principles in relation to compensation and interest that I have sought to articulate in paragraph [47] above. The fact that Mulvaney concerns equitable compensation does not detract from its utility as an example of the law's endeavour to avoid overcompensation in the case of damages awarded in a commercial context. His Honour said: "[50] If the amount sought to be awarded here was the income tax payable on the amount of compensation, as opposed to the amount of interest on that compensation, then I could understand the claim for additional compensation. [51] In this case the compensation that I determined to award reflects funds invested in the defendant's business by the first plaintiff. Those funds would not have been taxed in the hands of the first plaintiff. If the effect of the tax laws on my award of equitable compensation was to convert those monies into a taxable form - whether a capital gain or income - so as to reduce the net amount that the first plaintiff recovered from the defendant then the tax payable might well be a compensable loss. [52] But it seems to me that the interest component is of a different character. As I have explained the assumptions here are that the plaintiff would have used the money to good effect whether by paying down its own debts (if it had any - I have no evidence) or, more likely here, investing the monies in some alternative venture and so earning a profit on them. [53] In either case there would be a tax effect. In the first case, if the first plaintiff had debts that it did not reduce because of its investment in Ozibar then presumably the interest paid on those borrowings was deductible and was claimed. If its monies had been so applied then the first plaintiff would have paid more tax than it in fact did. How much more and what difference might exist between that notional sum and $178,154.88 is unknown. [54] In the second case, if the monies had been invested and earned a 10% return, as the award here assumes, then that return would itself have been taxable income of the trust and dealt with in the same general way, for taxation purposes, as this interest component. Alternatively it might be said that the monies invested would not have brought an immediate return but rather have resulted in some increase in the value of a business purchased with no immediate taxation consequences. But nonetheless an increase in the value of a capital asset would eventually be taxable when sold or would result in an increase presumably in earnings which would eventually be taxable. [55] The only other point to make is that if the monies were not to have been used in the ways that I have discussed then I would not have adopted an interest rate as high as 10%. [56] Thus if the monies had been retained and not paid out as they were there would have resulted an increase in tax payable in any of the possible scenarios. It is therefore not immediately apparent to me that a requirement of providing full compensation necessitates an allowance for the tax impost on the interest component. In my view the plaintiff has not discharged its onus of persuading me that the calculated and probable tax liability on the interest component ought, in fairness, be added to the award to achieve full compensation."

Conclusion

1. Having determined that the interest on the mesne profits is not to be grossed up for taxation, and being unaware of any other outstanding dispute between the parties, the Court will direct the parties to bring in short minutes to bring the entirety of this long running and hard fought inquiry to its conclusion at first instance.
2. Turning finally to costs, the Health District has succeeded on the matters resolved by these reasons. In my view, and subject to the parties exercising their right to be heard if they wish, the appropriate costs order is: 1. The costs of 2 September 2019 be the parties' costs in the cause; and 2. Macquarie pay the Health District's costs of and incidental to the preparation of the Health District's submissions of 2 and 18 October 2019. 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: 14 November 2019