Plaintiff v Defendants

2 At the times material to this proceeding, the plaintiff was the owner of the shopping centre known as Market Square, Geelong. The first defendant was a tenant of that centre, at which it conducted a take away food business, known as "Magic Meals", in the centre's food court between about 1998 and 31 October 2008. The first defendant conducted that business as trustee of the Bowler Family Trust. The second and third defendants were the directors, shareholders and employees of the first defendant, and beneficiaries of the Bowler Family Trust.

3 In about 2008, the plaintiff resolved to redevelop the food court. For that purpose, it was necessary for the first defendant to vacate the premises. Accordingly, the plaintiff served two relocation notices upon the first defendant. The first defendant disputed the validity of those notices, and refused to vacate the premises. As a consequence, the plaintiff commenced proceedings against the first defendant in the Tribunal.

4 On 31 October 2008, the Tribunal made orders by consent, by way of mandatory injunction, that the first defendant vacate the premises. That injunction was granted on the basis of an undertaking by the plaintiff that it submit to such order, as the Tribunal may consider to be just, for the payment of compensation to any person (whether or not a party) adversely affected by the operation of the order.

5 Subsequently, the validity of the relocation notices was the subject of a contested hearing before the Tribunal. On 24 February 2009, a senior member of the Tribunal made an order declaring that both relocation notices were invalid, because they did not comply with s 55(3) of the Retail Leases Act 2003.

6 As a result of that decision, the second and third defendants sought to be joined to the proceeding, and the three defendants claimed damages pursuant to the undertaking given by the plaintiff on 31 October 2008.

7 The defendants' claims for damages came before the Deputy President on 20 and 21 August 2009. On 23 October, the Deputy President published his written reasons. By those reasons, the Deputy President ordered that the second and third defendants be joined to the proceeding. He then made findings in relation to a number of issues, which were in dispute between the parties, as to the appropriate assessment of the damages payable to the defendants. The Deputy President required that the parties carry out the necessary calculations on the basis of those findings, and directed that the parties bring in short minutes of orders relating to the damages so calculated by them.

8 The parties were subsequently unable to agree as to the appropriate orders to be made by the Tribunal. As a result, a directions hearing took place before the Deputy President on 7 December 2009. At that hearing, the plaintiff was ordered to pay to the defendants $300,000 on account of damages, and a further hearing was directed to take place before the Deputy President on 13 April 2010. At the conclusion of the hearing on 13 April 2010, the Deputy President pronounced oral reasons, and, subsequently, published formal orders on 11 May 2010. By those orders, the Tribunal:

(1) Declared that the three defendants were entitled to payment by the plaintiff of compensation in the sum of $461,644 divided between them as follows: first defendant - $259,020; second defendant - $54,983; third defendant - $147,641.

(2) Declared that the plaintiff had already paid $300,000 on account of that compensation.

(3) Ordered that the plaintiff pay to the defendants the sum of $161,644.

9 It is from that order that the plaintiff appeals to this Court.

10 Originally, two aspects of the decision of the Tribunal were the subject of the appeal in this proceeding, namely, the discount rate applied by the Tribunal in assessing the compensation payable to the defendants, and, secondly, the calculation by the Tribunal of compensation on a pre-tax basis. However, on the hearing before me, only the second basis was pursued by the plaintiff.

11 In the proceeding before the Tribunal, each side relied on the evidence of an expert accountant. Mr Kus gave evidence on behalf of the defendants. Based on that evidence, the defendants contended that the compensation to be awarded to them should be assessed without taking into account income tax (that is, on a post-tax basis). It would seem that that contention was based on the proposition that the defendants were claiming compensation for loss of income, so that any amount of compensation awarded to the defendants by the Tribunal would be subject to taxation as income in the hands of the defendants.

12 On the other hand, Mr Borsky, who gave evidence on behalf of the plaintiff, expressed the view that any award of compensation to the defendants would only be taxable under the capital gains tax provisions of the Income Tax Assessment Act 1997 (Cth). The plaintiff therefore submitted that the compensation, payable to the defendants, should be awarded on the basis of an amount calculated by reference to the net earnings lost by the defendants, to which should be added an amount of the capital gains tax payable by the defendants in respect of such an award.

13 In his first decision of 23 October 2009, the Deputy President summarised the competing submissions made on behalf of the parties. He referred to a number of authorities, including British Transport Commission v Gourley[1], Cullen v Trappell[2], New South Wales Cancer Council v Sarfaty[3], Patterson v Middle Harbour Yacht Club[4] and Kilburn v Enzed Precision Products (Australia) Pty Ltd & Ors[5]. In the relevant portions of his decision the Deputy President stated:

"56 It follows that the award here to Bowler Holdings must be approached on the basis that it is compensation for the loss of a taxable income stream and is taxable itself in the hands of Bowler Holdings.

1. At this point there are two approaches which would be adopted, one the view urged by Mr Hopper on behalf of Bowler Holdings would be to say that since the income stream compensated for and the damages award are both taxable the Gourley principle simply does not apply. The alternative approach would be to calculate the damages by reference to the post-tax regime but 'gross up' the award to allow for the instance of any capital gains tax which would prima facie be payable. This latter approach was adopted by the Supreme Court of New South Wales in _New South Wales Cancer Council v Sarfat_y (citation omitted) and by Whitlam J of the Federal Court of Australia in Patterson v Middle Harbour Yacht Club (citation omitted). This latter approach however is not without its difficulties. If the award is itself subject to tax it is impossible to make a calculation which would adequately indemnify the recipient against the tax liability. Every additional dollar or cent added to the award itself attracts income tax and so there would be an infinite process of calculation. ...
2. If the lost income stream for which compensation is given would have been subject to the very same taxation as the award itself, the argument is (sic) simply ignoring tax altogether and calculating the damages by reference to the free tax situation is irresistible. The matter is more difficult where the lost stream of income compensated for and the resulting damages award are subject to tax but under a different regime and at different rates. The approach in Sarfaty's case, subject to a mathematical difficulty described, however seeks to deal with this issue by a two stage calculation.
3. Sarfaty's was a case damages (sic) for wrongful dismissal. The amount of such an award is now taxable under a specific heading as a 'eligible termination' but on terms substantially more concessional than the ordinary income tax levy. This same issue arose in Patterson's case and the court approached the matter in the manner described. In Kilburn v Enzed Precision Products (citation omitted) the same issue confronted O'Bryan J of the Supreme Court of Victoria. His Honour considered that since the damages which he was awarding would be taxable as an eligible termination payment despite Gourley's case:

The court need no longer take taxation into account in calculating the damages for loss of earnings in a claim for wrongful dismissal.

1. This approach is of course inconsistent with the approach of the New South Wales Court of Appeal in Sarfaty. It is the same approach adopted by Moore J in the Industrial Relations Court of Australian in Grout v Gunnedah Council (1995) 129 ALR 372 ...
2. His Honour referred amongst other authorities to Kilburn's case. I will not trouble to refer to other authorities in which this issue has arisen. The authorities are not at one. Kilburn's case is however a decision of the Supreme Court of Victoria which has not so far as my research indicates been disapproved by the Victorian Court of Appeal or the High Court of Australia. It is binding upon me. Hence I conclude that Gourley's case does not apply here because the Tribunal's award will itself be taxable albeit on a different basis from the one on which the lost income stream would have been taxed. A calculation should be made by reference to the pre-tax situation of Bowler Holdings (and Mr and Mrs Bowler) and not the post-tax situation."

14 As I stated, following the delivery of that decision, some dispute arose between the parties which required further adjudication. In the course of his further ruling of 11 May 2010, the Deputy President sought to clarify his earlier decision relating to the implications of taxation in the following way:

"9 There were of course a number of differences in approach between the experts which I sought to rule upon in my principal reasons. Having looked at a number of authorities ... I concluded that the appropriate approach was to analyse these matters on a pre-tax basis. At the forefront of my analysis was the decision of the House of Lords in British Transport Commission v Gourley (citation omitted). In Gourley's case, a claim for personal injury damages, a plaintiff's recovery would be diminished by some hundreds of thousands of pounds if allowance was made for the income tax which he would have had to pay had he derived the lost income in the ordinary way through the balance of his life. The assumption made by their Lordships was that coming in the form of damages it would be a tax free capital sum. The House ruled that in the circumstances, the tortfeasor was liable only for the amount of the plaintiff's after tax earnings appropriately discounted and rendered in the form of damages, and not the amount which the plaintiff would have earned without regard to taxation. Ultimately however, I followed the decision of O'Bryan J of the Supreme Court of Victoria Kilburn v Enzed Precision Products ... (citation omitted). Kilburn's case was a case where the damages were awarded for wrongful dismissal. His Honour considered the impact of Gourley's case and those which followed it and said that the court need no longer take taxation into account in calculating damages for loss of earnings in a claim for wrongful dismissal. The reason that his Honour expressed this view was that he found that the amount of the damages would be taxed as an eligible termination payment under the Income Tax Assessment Act albeit at concessional and much lower rates than the same amounts which would have been taxed had they been derived as salary or wages. The result then was that Kilburn did not suffer the drastic diminution in damages which the plaintiff in Gourley's case did.

...

12 ... If you like, the principle in Kilburn's case gives ... the respondent having the advantages of damages undertaking, a windfall. By determining that I was bound to follow Kilburn's case I was necessarily determining that Holdings would derive that windfall ... ."

15 The reasons of the Deputy President do not provide a detailed breakdown of how the amount of compensation, assessed by him in the sum of $461,644, was calculated. However, it was common ground before me that the final figure, determined by the Tribunal, was based on calculations set out in the report of the defendants' expert, Mr Kus. By those calculations, Mr Kus -

(a) Estimated the defendants' likely total pre-tax income from conducting the business in the relevant period (from 1 November 2008 to 31 October 2014) in the total sum of $834,538.

(b) Deducted from those pre-tax amounts notional income tax at the agreed ordinary income tax rate of 31.5 percent to produce an aggregate total of $571,659.

(c) Discounted those figures to produce a net present value equivalent (applying a 23 percent discount rate) to produce an aggregate total of $321,874.

(d) Grossed up that figure, by reference to the agreed ordinary income tax rate of 31.5 percent, to produce a total of $469,888.

(e) Deducted the realised value of certain fixtures and fittings ($8,245) to arrive at the sum of $461,644.

16 The notice of appeal alleges that, as a matter of law, the Tribunal erred:

(a) In failing to take into account the tax which the defendants would have had to pay on the earnings, of which they had been deprived as a result of the interlocutory injunction.

(b) In not attempting to put the defendants in the same position as they would have been post-tax but for their loss of the business.

(c) In considering itself bound to apply Kilburn v Enzed Products (Aust) Pty Ltd[6] in circumstances where Cullen v Trappell[7] was binding on it.

(d) In concluding (at paragraph 12 of its reasons of 11 May 2010) that it was appropriate to confer a "windfall" upon the defendants at the plaintiff's expense.

17 At the commencement of his submissions before me, Mr Duggan, on behalf of the plaintiff, contended that the Deputy President of the Tribunal had concluded that the award of compensation to be made to the defendants would be subject to capital gains tax, and not to income tax. He submitted that the Deputy President, having reached that conclusion, erred, because he "grossed up" (in step (d) above) an amount calculated by reference to the ordinary income tax rate, rather than an amount calculated by reference to the rate of capital gains tax payable on the award. Mr Duggan submitted that, in doing so, the Deputy President erroneously considered himself to be bound by the decision of O'Bryan J in Kilburn v Enzed Precisions Products (Aust) Pty Ltd[8]. Mr Duggan submitted that the decision of O'Bryan J in Kilburn, relating to the calculation of damages for wrongful dismissal on a pre-tax basis, is no longer good law. Further, he submitted that, in any event, that decision may be distinguished from the facts of the present case. In Kilburn, the damages to be awarded to the plaintiff were liable to be assessed for income tax purposes, albeit as an eligible termination payment. By contrast, in the present case, the award of damages to the defendants constituted capital, and not income, thus only attracting the imposition of capital gains tax.

18 Mr Duggan further submitted that if, on a proper construction of his reasons, the Deputy President did not decide whether the award of compensation to the defendants would be liable to the imposition of income tax or to the imposition of capital gains tax, I should remit the matter to the Tribunal, in order that the Deputy President rule on that question. He submitted that, for the reasons set out above, if the award of compensation to the defendants were only liable to capital gains tax, the correct approach, at law, which the Tribunal should apply, would be to determine the defendants' losses by reference to their post-tax earnings, and to add, to those losses, the capital gains tax payable by the defendants on the award so arrived at.

19 In the defendants' written outline filed with the Court, Mr S Hopper, who appeared on behalf of the defendants, stated that the defendants did not intend to make any submissions in relation to the plaintiff's primary contention that the Tribunal erred in holding itself bound by the decision in Kilburn v Enzed Precision Products. However, in the hearing before me, Mr Hopper's position in that respect altered quite substantially. In particular, he submitted that the Deputy President did not make a decision as to whether the award of compensation to the defendants would be liable to income tax or to capital gains tax. He submitted that it was not necessary for the Deputy President to decide that question, because, on any view, the award would be liable to taxation, and, accordingly, the authorities required that the Deputy President calculate the losses sustained by the defendants on a pre-tax basis. In support of that submission, Mr Hopper relied on the judgment of Gibbs J in Atlas Tiles Ltd v Briers[9] (which was later adopted by the majority in Cullen v Trappell[10]), and on the decision of O'Bryan J in Kilburn v Enzed Precision Products (Aust) Pty Ltd & Ors[11]. Thus, Mr Hopper submitted that, if the Deputy President did decide that the award of damages to the defendants was subject to capital gains tax, the effect of such a decision would be that the damages should be assessed by reference to the lost pre-tax earnings of the defendants.

20 Mr Hopper further submitted that, alternatively, if the decision of O'Bryan J in Kilburn does not apply to the facts of this case, the determination of the question, whether the award of compensation to the defendants attracted capital gains tax or income tax, would, necessarily, involve a substantial element of uncertainty. In particular, he submitted that, because of the nature of the claim for damages made by the defendants, it could not be unequivocally characterised as a claim for a lost capital asset. In any event, the Commissioner of Taxation would not be bound by a finding by the Tribunal (or this Court) to that effect. Mr Hopper submitted that, in the absence of certainty as to the characterisation of the award as a capital gain (rather than as an income), the court would not be in a position to conclude that just compensation to the defendants could be calculated by reference to their post-income tax earnings. In support of that proposition, Mr Hopper relied on the judgment of Clark JA and Sheller JA in Daniels & Ors v Anderson[12]. Mr Hopper thus contended that, because of the inherent uncertainty attaching to the proper characterisation of the nature of the damages, the Deputy President was bound to assess the defendants' damages by reference to their lost pre-income tax earnings.

21 In response to that latter proposition, Mr Duggan contended that, on the materials which are available on this appeal, I am not in a position to assess that there is a material degree of uncertainty attaching to the characterisation of the defendants' compensation as a capital gain, rather than as income.

22 The competing submissions now made on appeal raise two principal questions, namely:

(1) What conclusion was drawn by the Deputy President as to the liability to taxation of the award of compensation to be made by him to the defendants?

(2) If the Deputy President concluded that the award of compensation was liable to capital gains tax, and not to income tax at the ordinary rate, did the Deputy President err in assessing the damages of the defendants on the basis of their lost pre-tax (and not post-tax) earnings? Alternatively, if the Deputy President did not determine whether such an award would be subject to income tax or capital gains tax, did he err in concluding that, in either event, that award should be calculated on the basis of the defendants' lost pre-tax earnings?

The decision of the Deputy President concerning liability of award to tax

23 In his two written decisions, the Deputy President did not, in express terms, state whether he had concluded that the award of compensation, to be paid to the defendants, would be liable to income tax at the ordinary rate, or whether it would be subject to capital gains tax. The question, as to what the Deputy President decided in respect of that issue, is, thus, not entirely clear-cut. Further, as Mr Hopper submitted, if the Deputy President had decided that capital gains tax, and not income tax, would be incurred on such an award, it would be expected that he would have stated his reasons for reaching that conclusion. Yet, neither of the two written decisions contain any articulation of such reasons by the Deputy President.

24 Nevertheless, after re-reading the two written decisions of the Deputy President a number of times, on a careful analysis of the Deputy President's reasons, I am persuaded that he did reach the conclusion contended for by Mr Duggan, namely, that the award of compensation to the defendants would be likely to be subject to capital gains tax, and not to income tax at the ordinary rate.

25 In paragraph 58 of his first decision (dated 23 October 2009), the Deputy President noted that the issue before him became difficult, where the lost income stream, in respect of which damages were to be awarded, and the damages award, are each subject to different regimes and rates of taxation. That observation suggests that the Deputy President considered that the award of compensation, to be made by him, would be subject to a different regime and rate of taxation (that is capital gains tax) than the lost income stream for which the defendants were being compensated. The matter is, I consider, put substantially beyond doubt in the passages which followed that observation. In paragraph 59, the Deputy President noted that, in Kilburn's case, the eligible termination payment to the plaintiff would be taxable under terms "substantially more concessional" than the ordinary income tax levy, but that, nevertheless, O'Bryan J held that, as a consequence of such tax, the award of damages would be calculated on the basis of lost pre-tax earnings. On the basis of Kilburn's case, the Deputy President, at paragraph 61, concluded that Gourley's case did not apply " ... because the Tribunal's award will itself be taxable albeit on a different basis from the one on which the lost income stream would have been taxed". (Emphasis added). That observation, particularly in the context in which it was made, is a clear indication that the Deputy President did decide that the award of compensation, to be made by him, would be subject to capital gains tax, and not income tax.

26 That conclusion is reinforced by the explanation given by the Deputy President of his first decision, in his second set of reasons dated 11 May 2010. In paragraph 9 of those reasons, he referred to Gourley's case, and stated that he had followed the decision of O'Bryan J in Kilburn's case, namely, that the damages should be calculated on the basis of loss of pre-tax earnings, because such damages would be taxed as an eligible termination payment under the Income Tax Assessment Act "albeit at concessional and much lower rates than the same amounts would have been taxed had they been derived as salary or wages". Based on that conclusion, the Deputy President, in paragraph 12, noted that the principle in Kilburn's case gave the defendants "a windfall". The Deputy President could only have described the effect of his decision as providing the defendants with a "windfall" if he had formed the view that the award of compensation to be made by him would be subject to capital gains tax, and not ordinary income tax.

27 Thus, while the question is not entirely free from doubt, there are sufficient indications contained in both sets of reasons given by the Deputy President, and to which I have just referred, to enable me to conclude that the Deputy President did determine that the award of compensation to be made by him would be subject to capital gains tax, and not to income tax at the ordinary rate.

The effect of tax on the calculation of compensation

28 The question, then, is whether, in those circumstances, the Deputy President of the Tribunal erred in calculating the award of compensation payable to the defendants without taking into account the effect of taxation. In particular, the issue, which I must determine, is whether, as submitted by the plaintiff, the Deputy President should have calculated the compensation payable to the defendants by reference to the post-tax earnings lost by the defendants, and by adding, to that calculation, an estimate of the capital gains tax payable by the defendants in respect of such an award.

29 The starting point, of the basis for the assessment of the damages to be awarded to the defendants, is uncontroversial. As noted by the Deputy President, the inquiry, which was to be undertaken by him, was an assessment of the damages sustained by the defendants as a consequence of the mandatory injunction, to which they had submitted, requiring them to vacate the demised premises. Subsequent to the grant of that injunction, the Tribunal had determined that the notices of relocation, served on the defendants, were invalid. Accordingly, the defendants became entitled to be compensated by the payment of damages, in equity, which the plaintiff had undertaken to pay, and which had resulted from the grant of the injunction. The damages so payable to the defendants, in such a case, would, generally, consist of damages flowing directly from the injunction, and which could have been foreseen when the injunction was granted to the plaintiff.[13] The principal question, on this appeal, is whether, having determined that such compensation would be subject to capital gains tax, the Deputy President erred in concluding that he should assess that compensation on the basis of the lost pre-tax earnings of the defendants.

30 Mr Duggan submitted that, in that respect, there was a clear error in the reasoning by the Deputy President, which can be demonstrated by reference to the fourth step (step (d)) in the calculation of the compensation payable to the defendants (as summarised in paragraph 15 above). In particular, Mr Duggan submitted that, having determined that the award of compensation to the defendants would be subject to capital gains tax, and not to income tax at the ordinary rate, the Deputy President erred in adding back ("grossing up"), at step (d), the ordinary tax payable on the discounted losses sustained by the defendants, rather than the capital gains tax payable in respect of that sum. He submitted that the "grossing up" of the ordinary income tax rate of 31.5% (at step (d)), rather than the capital gains tax payable in respect of the award, was inconsistent with the conclusion by the Deputy President that the award was not liable to income tax, but to capital gains tax.

31 That submission, while superficially attractive, does not resolve the issue, because it ignores the reason why the Deputy President apparently calculated the defendants' losses using the formula summarised in paragraph 15 above. One of the issues, which the Deputy President was required to resolve, concerned the appropriate discount rate to be applied to the loss of income sustained by the defendants. In respect of that issue, the Deputy President accepted the evidence of Mr Borsky that the appropriate discount was at a rate of 23% applied to the post-tax lost income of the defendants. Having formed that view, it was therefore necessary for the Deputy President to deduct notional income tax from the pre-tax losses, in order to apply that discount rate which he had accepted. However, having concluded that the losses should be determined without taking into account taxation, it was necessary for the Deputy President (at step (d)) to add back ("gross up") the amount of ordinary income tax on the discounted losses calculated by him.

32 That analysis of the calculations of the defendants' losses by the Tribunal leaves open the principal question on this appeal, namely, whether, having determined that the award of compensation would attract capital gains tax, and not income tax, the Deputy President erred in calculating the defendants' damages by reference to the lost pre-tax income (and not post-tax income) of the defendants.

33 As noted by the Deputy President in his first ruling, the state of the authorities in relation to this question is not clear-cut. The starting point is the decision of the House of Lords in British Transport Commission v Gourley[14], concerning the question whether the assessment of damages for loss of past and future earnings, in a personal injury claim, should be determined by reference to the pre-tax, or post-tax income, of the plaintiff. The House of Lords (Lord Keith dissenting) held that the plaintiff's damages should be assessed by reference to the post-tax earnings, which would have been derived by the plaintiff, if he had not sustained his injury. Their Lordships' conclusions on that question were essentially based on the fundamental principle that damages should be awarded to an injured party in such a way as to put the plaintiff in the same position he would have been in if he had not sustained his injuries.[15]

34 The same question arose, in the context of a claim for damages for wrongful dismissal, in Atlas Tiles Ltd v Briers[16]. In that case, the High Court, by a majority (Barwick CJ, Jacobs and Murphy JJ), held that the assessment of damages, in such a case, should be based on the lost earnings of the plaintiff, without any deduction for income tax which would have been payable by the plaintiff in respect of those earnings. Gibbs J and Stephen J each dissented, holding that the appropriate measurement of the loss of the plaintiff should be based on his lost post-tax earnings.

35 Six months after the delivery of judgment in Atlas Tiles, the same question came for decision before the High Court in Cullen v Trappell[17], in a case involving the assessment of damages for past loss of earnings and loss of future earning capacity in a personal injury case. On this occasion, the High Court (by a majority of four to three) declined to follow its previous decision in Atlas Tiles Ltd v Briers, and applied the decision of the House of Lords in British Transport Commission v Gourley. In holding that the appropriate measure of the plaintiff's damages should be based on his lost post-tax earnings, Gibbs J (with whom Mason and Wilson JJ agreed) expressly adopted and applied the views, which he had previously stated in his dissenting judgment in Atlas Tiles Ltd v Briers.

36 In Atlas Tiles, Gibbs J held that the principle, in Gourley's case, applied to the assessment of damages for wrongful dismissal, provided that the lost earnings would have been taxable in the hands of the plaintiff if he had received them, and provided that the damages when received are not subject to tax.[18] At that time, s 26(d) of the Income Tax Assessment Act 1936 (Commonwealth) provided that the "assessable income" of a taxpayer shall include five per centum of (inter alia) any compensation paid in consequence of termination of any employment. The question thus arose as to the effect of that provision on the assessment of damages for wrongful dismissal.

37 In determining the effect of that provision, Gibbs J referred to the judgment of Lord Hunter, in the Outer House of the Scottish Court, in Stewart v Glentaggart Ltd[19]. That case involved the assessment of damages for breach of a managing director's employment agreement. At that time, the United Kingdom's Finance Act 1960 imposed income tax on any payments exceeding £5,000, which were made pursuant to an award for damages for wrongful dismissal. Lord Hunter concluded that, where the damages awarded for wrongful dismissal exceeded the amount of £5,000, it would be appropriate to assess them on the basis of the plaintiff's lost earnings net of taxation, and to add to that figure the amount of tax, to which it would be subject. In Atlas Tiles, having referred to that decision, Gibbs J concluded[20]:

"... It seems to me that the principle in Gourley's case should be applied in assessing damages for wrongful dismissal in Australia, notwithstanding that five percent of the award will be taxable. As I have already said, I consider that, in general, the principle applies only where the damages are not taxable, and this would be so even if the tax payable on the award were considerably less than the notional tax on the lost earnings. But where only a small fixed proportion of the award is subject to tax, it would be manifest that a plaintiff would receive more than was necessary to compensate him for the loss caused by his wrongful dismissal if his damages were assessed on the footing of his gross earnings, when all of those earnings would have been subject to tax. The reasons underlying Gourley's case in my opinion require that in such a case the court should assess damages on the basis of the net earnings which represented the plaintiff's real loss, but should adjust the result by taking account of the fact that a proportion of the award will bear tax. The proper approach is, I consider, along the lines suggested in Stewart v Glentaggart Ltd, but it is not necessary, as a matter of law, to say more than that in making the assessment the court must take into account both the fact that if the contract had not been broken the respondent would have had to pay tax on his earnings, and that he will now have to pay tax on 5 percent only of the damages awarded."

38 The principles, stated by Gibbs J in Atlas Tiles Ltd, and endorsed by the majority of the High Court in Cullen v Trappell, have given rise to differing, and arguably conflicting, approaches to the assessment of damages in cases involving claims for damages for wrongful dismissal.

39 In 1984, the Income Tax Assessment Act was amended to provide that the assessable income of a tax payer shall include the amount received by way of an "eligible termination payment", which was defined to include a payment made by compulsion of law. In Kilburn v Ezned Precision Products (Aust) Pty Ltd[21], O'Bryan J held that, as a result of those amendments, the Court should no longer take into account taxation in calculating damages for loss of earnings in a claim for wrongful dismissal. His Honour stated:

"In my view, the amendments made to the Income Tax Assessment Act in 1984 by Act No 47, whereby the assessable income of a taxpayer shall include the amount received by way of an 'eligible termination payment', has the ... effect [that] ... the court need no longer take taxation into account in calculating the damages for loss of earnings in a claim for wrongful dismissal. The damages awarded to the plaintiff will probably attract tax as an 'eligible termination payment' made by compulsion of law."

40 The approach adopted by O'Bryan J in Kilburn has been applied in a number of later decisions involving claims for wrongful dismissal, including Wheeler v Philip Morris Ltd[22]; Grout v Gunnedah Shire Council[23]; Byrne v Australian Airlines Ltd[24] and Reilly v Praxa Ltd[25].

41 On the other hand, a different technique of assessing damages for wrongful dismissal has been adopted in other cases. In New South Wales Cancer Council v Sarfaty[26], the trial judge, in a claim for damages for wrongful dismissal, assessed the plaintiff's damages on the basis of the after tax salary, which the plaintiff would have received, if he had continued in the employment of the defendant. In addition, the trial judge awarded the plaintiff damages to compensate him for the income tax payable on the judgment. The defendant appealed against the aspect of the award of damages which included the income tax payable on the judgment. Although the plaintiff cross appealed on other matters, he did not challenge the assessment of damages on the basis of his lost post-tax income.

42 The Court of Appeal upheld the decision of the trial judge to include, in the damages awarded to the plaintiff, an amount comprising the liability of the plaintiff to tax on the amount of those damages. In doing so, Gleeson CJ and Handley JA referred to the dissenting judgments of Gibbs J and Stephen J in Atlas Tiles Ltd v Briers, in which their Honours had resolved the issue, relating to the tax payable pursuant to s 26(d) of the Income Tax Assessment Act 1936, by determining that the appropriate approach was to assess the plaintiff's damages on the basis of his post-tax earnings, but to add to that amount the taxation payable on 5 percent of the damages which were to be awarded.[27] In Sarfaty, Gleeson CJ and Handley JA[28] considered that the provisions of s 26(d) of the Income Tax Assessment Act, which were considered in Atlas Tiles Ltd v Briers, were sufficiently analogous to the tax implications of the 1984 amendments in the present case, to justify the application of the same approach.[29]

43 In the subsequent case of Patterson v Middle Harbour Yacht Club & Anor[30], the parties initially agreed that the damages for wrongful dismissal should be assessed in accordance with the decision of the New South Wales Court of Appeal in NSW Cancer Council v Sarfaty. However, after judgment was reserved, the applicant raised a question whether such an approach was appropriate, given the recent decision of Moore J in Grout v Gunnedah Shire Council[31]. Whitlam J, having referred to the authorities, concluded that the appropriate approach was to apply the method of calculating damages which was adopted in Sarfaty's case. Based on that approach, Whitlam J assessed the plaintiff's damages on the basis of his lost after-tax earnings, and added to that figure an amount to compensate the plaintiff for the tax payable on the damages award as an "eligible termination payment".

44 It is in the background of those authorities that in the present case the Deputy President of the Tribunal considered himself bound to follow the decision of O'Bryan J in Kilburn's case. In particular, the Deputy President applied the reasoning of O'Bryan J, in Kilburn, namely, that if the damages awarded to the claimant are based on lost income, which would have been taxable, and if the award of damages to the claimant is also taxable, then the damages should be calculated on the basis of the lost pre-tax earnings of the claimant.

45 As I stated, there are now a number of decisions awarding damages for wrongful dismissal on the basis of the lost pre-tax earnings of the plaintiff. In a number of those cases, it was accepted, without argument, that the lost pre-tax earnings was the appropriate measure of assessment of the plaintiff's losses[32]. Further, the Court of Appeal of New South Wales in Sarfaty did not need to consider that principle. In that case, at first instance, it was common ground that the plaintiff's damages were to be assessed on the basis of his lost post-tax earnings[33]. In Patterson v Middle Harbour Yacht Club & Anor[34], Whitlam J did give consideration as to the appropriate basis upon which the plaintiff's lost earnings were to be compensated. However, as I have already noted, in that case, at trial, it had been common ground that damages should be awarded on the basis of the plaintiff's lost post-tax earnings, to which there should be added an allowance for taxation on the award, in accordance with the formula adopted by the Court of Appeal in Sarfaty's case. It would appear that Whitlam J did not hear any argument from counsel on the issue, save that, after he had reserved his decision, counsel had drawn his attention to the decision of Moore J in Grout v Gunnedah Shire Council.

46 Thus, the preponderance of the authorities support the proposition that, in an action for wrongful dismissal, damages should be assessed on the basis of the plaintiff's lost pre-tax earnings. It would seem that those cases were based on an application of the principle, stated by Gibbs J in Atlas Tiles Ltd v Briers, that damages should be assessed on the basis of lost pre-tax earnings, where the lost earnings, and the award, are each liable to the imposition of taxation.

47 The question, whether the Deputy President erred in applying that principle in this case, is not without some difficulty. The principle, stated by Gibbs J in Atlas Tiles, was relatively simple to apply in the particular facts of that case. As I have already noted, the only complexity in that case was that, by reason of s 26(d) of the Income Tax Assessment Act 1936, 5 percent of the damages awarded to the plaintiff for wrongful dismissal would be liable to taxation. Gibbs J and Stephen J each recognised that, in such a case, it would be unjust to assess damages on a pre-tax basis, where only a fraction of the award itself was susceptible to taxation. However, in doing so, their Honours expressly noted that the position would be different, where the whole of the award was taxable, albeit at a considerably lower rate than the lost income, in respect of which the damages were awarded.[35]

48 In this case, the position is, of course, different in a particular respect. As contended by Mr Duggan, the lost income, on which the award of compensation to the defendants was based, would have been subject to income tax in the hands of the defendants. On the other hand, pursuant to the decision of the Deputy President, the award of compensation to the defendants was not liable to income tax, but to capital gains tax.

49 The question is whether that difference is a valid point of distinction, removing the facts of this case from the principle stated by Gibbs J and Stephen J in Atlas (and approved by the majority in Cullen v Trappell) that damages are to be assessed on a pre-tax basis if the lost income, and the award of damages, are both liable to taxation.

50 In order to address that question, it is necessary to return to the reasoning of Gibbs J in Atlas Tiles in a little more detail, and to consider how that reasoning has been applied in subsequent cases.

51 In Atlas Tiles Ltd, Gibbs J noted that one of the foundations for the decision of the House of Lords in Gourley's case was the fundamental principle that damages are awarded as compensation for the loss sustained by a plaintiff. Accordingly, where the lost income claimed would be taxable, but the award of damages would not be subject to taxation, the claimant would be over-compensated, if the damages were assessed on the basis of the lost pre-tax earnings of the claimant.[36] Clearly, that underlying objective would not be achieved, if damages were taxable at a considerably lower rate than the lost earnings, in respect of which the damages were awarded. Yet, in such a case, Gibbs J nevertheless considered that damages should be calculated on the basis of the lost pre-tax earnings, notwithstanding that in doing so the claimant would, to that extent, be over-compensated.

52 It is not clear, from his Honour's judgment, why, in the context of the issues in Atlas Tiles, Gibbs J considered that the susceptibility of an award of damages to a lower rate of taxation would have the result that the damages should be assessed on the basis of the lost pre-tax earnings of the claimant. It would seem, however, that at least part of the reason may be found in the concern that, in such a case, the assessment of damages might become particularly complex and uncertain. In particular, if it were necessary to take into account the tax implications of an award of damages, that may involve complex issues concerning the determination of the putative tax liability of the plaintiff's lost earnings, as well as difficulties and uncertainties in postulating the plaintiff's tax liability of such an award of damages.

53 Certainly, those factors were quite prominent in the reasoning of the Court of Appeal in Parsons v BNM Laboratories Ltd[37], which was referred to by Gibbs J in Atlas Tiles. That case was concerned with the provisions of the United Kingdom Finance Act 1960, to which I have earlier referred. In Parsons' case, the Master had assessed the plaintiff's damages for wrongful dismissal on a pre-tax basis, notwithstanding that the award of damages was significantly less than the £5,000 tax threshold fixed by the legislation. The Court of Appeal allowed the defendant's appeal, holding that, because the whole of the award of damages to the plaintiff was tax free, his damages should have been calculated by reference to his lost post-tax earnings. The argument before the Court of Appeal had, to a substantial extent, focused on the question as to how damages should be assessed if, hypothetically, the award had exceeded the sum of £5,000. Although it was not necessary for its decision for it to do so, the Court of Appeal considered that question. In doing so, it referred to the solution postulated by Lord Hunter in Stewart v Glentaggart, to which I have earlier referred, namely, that damages in such an event might be calculated on a post-tax basis, and by adding to that sum an amount to compensate the plaintiff for the tax liability on the award of damages. In Parsons, the Court of Appeal[38] rejected such an approach, principally because the assessment of the amount of taxation on the damages would involve a number of imponderables, which would invest the calculation of such an amount with an unacceptable degree of uncertainty.

54 A similar approach, to the implications of taxation on a judgment sum, was adopted, in a different context, by the New South Wales Court of Appeal, and the High Court, in Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd[39]. That case involved a question, which is quite different to the question in the present case. In Pennant Hills, the plaintiff had successfully sued its insurance broker for failing to organise worker's compensation insurance cover. The plaintiff claimed that its damages should include an amount consisting of the taxation on the income which it would derive by investing the judgment sum. The plaintiff claimed that amount on the basis that it would be necessary for it to invest the judgment sum to enable it, in future years, to indemnify the uninsured liability scheme for worker's compensation payments made to the injured employee of the plaintiff. The New South Wales Court of Appeal, and the High Court, each concluded that such an amount was not recoverable by the plaintiff. The principal reason, for the rejection of that aspect of the plaintiff's claim, arose from the underlying difficulties and complexities in assessing the taxation implications arising from the investment by the plaintiff of the judgment sum.[40]

55 The issue of the tax implications, resulting from an award of damages, arose in a manner which is more directly relevant to the facts of this case in the decision of the New South Wales Court of Appeal in Daniels & Ors v Anderson[41]. In that case the plaintiff, AWA Limited, had successfully brought proceedings against its auditors, the defendants, for negligence arising out of the failure of the auditors to detect and advise the board of directors of the plaintiff about substantial losses incurred by the plaintiff in foreign currency dealings. The trial judge, Rogers J, ordered the defendants to pay the plaintiff $13,600,000, plus interest, by way of damages. His Honour further directed that that amount should be reduced to take into account the difference between, on the one hand, the higher rate of company tax applicable at the time of the losses claimed by the plaintiff, and, on the other hand, the lower rate of company tax applicable to the plaintiff at the time of judgment. The Court of Appeal allowed the cross-appeal of the plaintiff in respect of that aspect of the decision of Rogers J.

56 In their joint judgment, Clark JA and Sheller JA (with whom Powell JA concurred) considered a number of the authorities to which I have referred. From those cases their Honours derived the following propositions:

"1 If an award is made for loss of earning capacity and the verdict is not taxable it is appropriate to assess the amount of verdict by reference to nett earnings after tax.

1. In making such an assessment and using tables to determine the present value of future economic loss regard should be had to the notional tax on the income assumed to be derived from the amount awarded for the future economic loss.
2. If a comparison between taxable receipts for which damages are recoverable and the taxability of the compensatory verdict are so uncertain and depend upon such imponderables as the degree to which the plaintiff can for example carry forward losses from previous years the appropriate course is to ignore taxation considerations.
3. If on the other hand it is unjust not to take account of identifiable and quantifiable taxation impacts both on the lost receipts and the compensatory damages then these may be taken into account in assessing damages."[42]

57 Based on those principles, Clark JA and Sheller JA considered that the difficulty, if not impossibility, at arriving at an amount of allowance for the difference in the two corporate tax rates, had the effect that the implication of taxation should be ignored in determining the losses sustained by the plaintiff.

58 In my respectful view, the above statement of propositions by the New South Wales Court of Appeal accurately summarises the effect of the relevant principles in this area. In effect, those propositions reflect the application of the fundamental principle that the function of damages is to provide fair compensation for a loss sustained by a claimant. Thus, where an award of damages is not liable to taxation, it is just that the damages should be assessed by reference to the post-tax earnings of the claimant. Otherwise, the award of those damages would be well in excess of fair compensation for the loss sustained by the plaintiff. Further, where the award of damages is liable to taxation, and where it is possible, to calculate, with reasonable certainty, both the damages on the basis of the plaintiff's lost post-tax earnings, and also the tax liability arising from the compensatory verdict, it would be unfair to assess damages, without taking the relevant tax implications into account. In such a case, the assessment of damages, ignoring tax, would not result in an amount of compensation, which is fair both to the claimant and to the defendant.

59 On the other hand, a difficulty may arise where there is a degree of uncertainty attaching to the nature, or the amount, of the taxation which might be imposed on the award of damages. In such a case, the law is cautious about taking into account the tax implications of such an award. In particular, where that process would involve a number of assumptions or imponderables, an award, taking the taxation implications into account, may not constitute fair and just compensation. In that event, an award of damages, based on the plaintiff's lost post-tax damages, might be liable to the imposition of an amount of taxation, in respect of which the plaintiff is not properly compensated. Further, in such a case, the assessment of damages would involve an impermissible degree of speculation, and become unduly entangled with collateral issues involving the complexities of taxation law. It is those considerations which explain the caution expressed by Gibbs J in Atlas Tiles v Briers, and which are reflected in the third proposition stated by Clark JA and Sheller JA in Daniels & Ors v Anderson. Where there is a lack of reasonable certainty as to the existence, nature or quantification of the tax liability of the damages verdict, an award of damages, in such a case, could not be described as being unjust or unfair, if it were assessed without taking into account taxation.

60 In the present case, as I stated, it is implicit in the decision of the Deputy President that he concluded that the award of compensation to the defendants would be subject to capital gains tax, but not to income tax. Having reached that conclusion, the Deputy President considered that he was bound by the decision of O'Bryan J in Kilburn v Enzed Precision Products (Aust) Pty Ltd to conclude that the compensation to be awarded to the defendants, should be assessed without taking into account taxation.

61 In the present state of the authorities, it is now well established that damages for wrongful dismissal should be assessed on the basis of the plaintiff's lost pre-tax earnings. Those decisions are, it would seem, based on a rather strict application of the dictum of Gibbs J in Atlas Tiles Ltd v Briers, that damages should be assessed on the basis of the plaintiff's lost pre-tax earnings, where the lost earnings, and the award of damages, are each liable to taxation. However, those authorities do not dictate that, in cases not involving claims for wrongful dismissal, the dictum of Gibbs J should be regarded as an inflexible statutory formula. Rather, as I have demonstrated, the application of the principle, contained in that dictum, has been developed, in subsequent decisions, so that the applicable principles are relevantly expressed in the four propositions stated by Clark JA and Sheller JA in Daniels & Ors v Anderson. Thus, the authorities, to which I have referred, support the proposition that it is appropriate to take into account the taxation implications of an award of damages, provided that there is a sufficient degree of certainty relating to the nature and quantification of the taxation liability arising from the award of those damages.

62 It follows, from the foregoing discussion, that, in my view, the Deputy President, having determined that the award of compensation to the defendants would be subject to capital gains tax, erred in considering that he was bound, by Kilburn's case, to conclude that the compensation to be awarded to the defendants should be assessed without taking into account taxation. Rather, as I have stated, the applicable principles, in such a case, are to be found in the four propositions stated by Clark JA and Sheller JA in Daniels v Anderson (above).

63 The question, which then arises, is whether, on the materials before me on this appeal, it is possible to conclude that there was sufficient certainty as to the taxation implications of an award of compensation to the defendants, to lead to the conclusion that the Deputy President ought to have assessed the compensation to the defendants on the basis of their lost post-tax earnings.

64 In some cases, the question, of the tax implications of an award of damages, can be determined with a reasonable degree of certainty. In such cases, the courts have been sufficiently confident as to the taxation implications of a judgment or award of damages, as to be able to act on the basis of that assessment. The most common examples involve claims by injured plaintiffs for damages for loss of earning capacity. In those cases, the courts have been sufficiently confident that the award of damages would not be susceptible to taxation, as to lead to the conclusion that the damages should be assessed on the basis of the injured plaintiff's lost post-tax earnings.[43] However, that will not always be the case. Of its nature, the issue, as to the possible tax implications of an award of damages, involves a degree of uncertainty, particularly where the damages are assessed by reference to the plaintiff's lost earnings, or lost asset.

65 In the present case, there are a number of factors which lead to the conclusion that it would not be possible for the Tribunal to assess with any reasonable degree of certainty the tax implications of the award of compensation in favour of the defendants.

66 As I have already noted, the Deputy President did not provide any reasons for the implied conclusion which he reached, namely, that the award of compensation would be liable to capital gains tax and not income tax. The issue was, however, in contention in the Tribunal, and the two expert accountants expressed competing views as to whether the compensation, claimed by the defendants, would attract income tax or capital gains tax.

67 It would seem, from the authorities, that the answer to that question is to be determined by reference to the nature of the loss in respect of which compensation is claimed.[44] In the present case, the defendants claimed damages calculated by reference to the lost earnings of the first defendant's business. However, the precise nature of the losses claimed by the defendants is not clear. On its face, it is understandable that there would have been a point of contention between the parties as to whether the claim by the defendants was simply a claim for loss of earnings, or (as contended by the plaintiff) a claim for a loss of a capital asset, valued by reference to the earnings which would have been derived by the business during the period in which the first defendant was excluded from the demised premises. As I stated, there is no indication, in the decisions of the Deputy President, as to how he resolved that issue in favour of the plaintiff.

68 The correct characterisation of the compensation, for tax purposes, is particularly complicated because of the involvement of the second and third defendants in the award. In granting them standing to make a claim for compensation, and in making awards of compensation in their favour, the Deputy President appears to have treated the three defendants, collectively, as a "group" (first decision, paragraph 13; second decision, paragraphs 7, 14), or as a "quasi partnership" (first decision, paragraph 35, 41). In effect, the Deputy President assessed the value of the loss, to the three defendants, by reference to the lost "income stream" of the first defendant, and then decided that that loss should be equitably divided between each of the three defendants (first decision, paragraph 56, 58). By its decision, the Tribunal made three awards of compensation respectively to each of the three defendants. However, the compensation awarded to them was not separately determined by the Tribunal. Rather, the Deputy President determined the discounted value of the lost earnings of the business of the first defendant, and then divided that amount between the three defendants.

69 For the purposes of the issue which determines this appeal, two problems emerge from the method undertaken by the Deputy President. First, it adds to the difficulty of determining the nature of the tax liability (if any) of each of the three awards of damages, and, particularly, the awards to the second and third defendants. Although they were shareholders in the first defendant, and beneficiaries of the family trust, they were not, at law, "part owners" of the business. The compensation, in which they shared, was assessed, not by reference to their lost earnings, but by reference to the lost earnings of the first defendant. Similarly, by subtracting from the discounted lost earnings of the first defendant, amounts apportioned to the second and third defendants, the correct characterisation of the balance of the award, made in favour of the first defendant, for taxation purposes, becomes even more difficult and contentious.

70 The second problem arising from the division, between the three defendants, of the discounted lost earnings of the business of the first defendant, is that it creates an inherent difficulty in adopting the methodology, used in Sarfaty's case, to determine the appropriate quantum of compensation to be awarded to the three defendants. It is conceivable that the three awards might not each be subject to the same taxation regimes, or, at least, to the same rates of taxation in any event. Further, the estimation of that taxation liability of each defendant might itself involve a number of imponderable issues. Those considerations compound the underlying difficulty and uncertainty which would occur in endeavouring to compare, on the one hand, the taxation which would have been imposed on the lost earnings of the first defendant (on which the three awards of compensation were based), and, on the other hand, the taxation liability of each of the awards of compensation made to each of the three defendants.

71 The problem becomes more difficult, because the Deputy Commissioner of Taxation is not, of course, bound by the (implied) conclusion of the Deputy President of the Tribunal to that effect.[45] Mr Duggan, at one stage, suggested that the problem may be resolved by the Tribunal making an order declaring that the plaintiff indemnify the defendants in respect of any tax liability, which might be incurred by them arising from the award of compensation. The difficulty with that proposition is that it cuts across the basic common law principle that damages are awarded once and for all. As Davies J observed in Namol v AW Baulderstone (No 2)[46] in respect of such a proposed order:

"It is inconsistent with common law principles to make a conditional order either providing for an additional award should a certain event occur or reducing or providing for a reduction of an award should an expected event not come to pass."

72 Further, even if it could be assumed that there is reasonable certainty that each award of compensation in this case would attract capital gains tax, and not income tax, it is quite conceivable that, if the Tribunal were to assess the quantum of the potential liability of the three awards to capital gains tax, the actual quantification of that liability might be subject to a different assessment by the Commissioner for Taxation.

73 That consideration is compounded by a point referred to by the Deputy President. If the defendants' compensation in this case were assessed, by adding to their lost post-tax income an estimate of their potential liability for capital gains tax, the whole of that amount (including the amount awarded for capital gains tax) might itself be susceptible to the imposition of capital gains tax. In that way, the assessment of damages, taking into account a liability for capital gains tax, would, in the words of Mahoney JA in New South Wales Cancer Council v Sarfaty[47] "... involve an infinite process of calculation".

74 The result of the foregoing is that, necessarily, there are a number of factors which would prevent an assessment, with any reasonable degree of certainty, of the tax implications of the award of compensation in favour of the defendants in this case. Those factors are inherent in the manner in which the claim for compensation was made, and by which it was assessed by the Tribunal. I do not consider that the issue could gain any greater degree of clarity, should it be remitted to the Tribunal for further consideration. Rather, the nature of the three awards, and the inherent issues which arise in determining the appropriate type and rate of taxation to be applied to the three awards, would, in my view, make it inevitable that the Tribunal would reach the same conclusion to which I have arrived, namely, that it is not possible to assess, with any reasonable degree of certainty, the tax implications of the awards of compensation in favour of the three defendants in this case.

75 In those circumstances, it would not be possible to assess the defendants' entitlements to compensation by taking into account the potential tax liability of the award of compensation to them. Thus, it would not be possible to cater for the liability of the award to taxation, by adding to the award an amount to compensate the defendants in respect of that potential liability. That being so, an award of compensation, calculated by reference to the lost post-tax earnings of the first defendant, but without making an allowance for the liability of the awards of compensation to taxation, would not result in fair and just compensation to the defendants for their loss. Accordingly, the principles, to which I have referred in this judgment, have the result that it is fair and just not to take into account the impact of taxation, both on the lost earnings, which formed the basis of the claim for compensation before the Tribunal, and on the awards of compensation made to the defendants.

76 In reaching that conclusion, I am conscious that, in his second written decision dated 11 May 2010, the Deputy President stated that he considered that the result, which he had arrived at, gave the defendants a "windfall". However, that may not be necessarily so, in light of the matters which I have discussed above. As I stated, it would not be possible to meaningfully predict the dimension of the liability, to taxation, of the award of compensation made in this case to the defendants. Thus, it is not possible to make any realistic comparison between, on the one hand, the "gain" to the defendants arising out of the assessment of compensation by reference to their lost pre-tax earnings, and, on the other hand, the amount which they may be liable to pay to the Commissioner of Taxation in respect of the award of compensation to be made to them.

77 For the foregoing reasons, I have therefore concluded that, although the Tribunal was not bound by Kilburn's case, nevertheless, on an application of the relevant principles, the Tribunal was bound to come to the decision which it reached, namely, that the awards of compensation to the defendants should be assessed, without taking into account the liability to taxation of the lost earnings on which the awards were based, or the liability of the three awards of compensation to taxation.

78 It follows that the appeal by the plaintiff should be dismissed. I shall hear counsel on the question of costs.

[1] [1955] UKHL 4; [1956] AC 185.

[2] [1980] HCA 10; (1980) 146 CLR 1.

[3] (1992) 28 NSWLR 68.

[5] (1988) 4 VIR 31.

[9] [1978] HCA 37; (1978) 144 CLR 202.

[10] [1980] HCA 10; (1980) 146 CLR 1.

[12] (1995) 37 NSWLR 438, 585.

[13] Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1981) 146 CLR 249, 266-267 (Aickin J); approved on appeal (1981) 146 CLR 306, 309-310 (Barwick CJ), 312 (Gibbs J), 319 (Stephen J); European Bank Ltd v Evans [2010] HCA 6; (2010) 240 CLR 432, 439 (French CJ, Gummow, Hayne, Heydon and Kiefel JJ).

[14] [1955] UKHL 4; [1956] AC 185.

[15] 197, 202-203 (Earl Jowitt), 208-209 (Lord Goddard), 212-213 (Lord Reid).

[16] [1978] HCA 37; (1978) 144 CLR 202.

[17] [1980] HCA 10; (1980) 146 CLR 1.

[19] (1963) SLT 119.

[21] (1988) 4 VIR 31, 34.

[22] [1989] FCA 230; (1989) 97 ALR 282, 312-313.

[23] (1995) 129 ALR 372, 373-374 (Moore J).

[24] (1992) 45 IR 178, 203 (Hill J).

[25] [2004] ACTSC 41, [33] (Gray J).

[26] (1992) 28 NSWLR 68.

[27] [1978] HCA 37; (1978) 144 CLR 202, 227 (Gibbs J), 236 (Stephen J).

[30] (Unreported, Federal Court of Australia, 20 March 1996); BC9600887.

[32] See, for example, Quinn v Jack Chia (Australia) Ltd [1992] VicRp 37; [1992] 1 VR 567, 581, (Ashley J); Guthrie v News Limited [2010] VSC 196, [196].

[33] Sarfaty v New South Wales State Cancer Council (Unreported, Supreme Court of New South Wales, 28 August 1991, Bruce A-J) BC9103662, at 11-12.

[35] Above, 227 (Gibbs J), 236 (Stephen J).

[36] Above page 221; see also Cullen v Trappell (above), 11 (Gibbs J).

[37] [1964] 1 QB 95.

[38] 129-130, Harman LJ; 138 (Pearson LJ).

[39] [1981] HCA 3; [1977] 2 NSWLR 827; (1981) 145 CLR 625.

[40] [1977] 2 NSWLR 827, 837-838 (Reynolds JA), 853 (Hutley JA); [1981] HCA 3; 145 CLR 625, 636 (Barwick CJ), 662-663 (Stephen J), 681-682 (Mason J).

[41] (1995) 37 NSWLR 438.

[43] Cullen v Trappell (above); Groves v United Pacific Transport Pty Ltd & Thompson [1965] Qd R 62, 65 (Gibbs J).

[44] See, for example, Carborundum Realty Pty Ltd v RAIA Archicentre Pty Ltd & Anor (1993) 93 ATC 4, 414 (Harper J); Namol Pty Ltd & Anor v AW Baulderstone Pty Ltd & Ors (No 2) [1993] FCA 606; (1993) 47 FCR 388, 392 (Davies J); Osric Investments Pty Ltd v Woburn Downs Pastoral Pty Ltd [2001] FCA 1402, [195]-[197] (Drummond J).

[45] Compare Parsons v BNM Laboratories Ltd (above), 129 (Harman LJ), 138 (Pearson LJ).

[46] Above, 391; cf P M Sulcs & Associates Pty Ltd v Daihatsu v Australia Pty Ltd [2001] NSWSC 798.