Events in 1995
The DIA Act received the Royal assent on 5 January 1995. On 24 January 1995, the Dairy Industry Authority ("the Authority") wrote to Nagy advising that amendments to the Act would be finalised and implemented in February and that licences currently issued by the Authority would no longer be effective. The letter from the Authority indicated that for those vendors who did not enter into a contract, the Distribution Adjustment Assistance Scheme ("DAAS") may be available and that documentation for assistance was currently being revised to accommodate those vendors not entering into a contract.
On 2 February 1995, the DIA Act, which implemented the restructure and deregulation of the dairy industry, commenced operation.
On 10 February 1995, Nagy made an inquiry about obtaining a copy of the terms and conditions of the proposed contract for the purpose of checking whether it was available during and after a three year period.
On 13 February 1995, Nagy spoke with officers of Masters and indicated that he wished to sign a contract, whereupon he was told for the first time by Masters that it believed he had rejected the contract and therefore the agreement had been given to a third party.
On 14 February 1995, a company representing the interests of the third party executed a distribution agreement with Masters, which covered the Maddington zone in respect of those distribution rights formerly held by Nagy.
On 15 February 1995, the solicitors for Nagy wrote to Masters asserting that it was in breach of s 52 of the TPA because Masters had led Nagy to believe that they had until 19 February 1995 to sign a contract in respect of their zone. In fact the cut-off date for distributorship contracts to be concluded was 19 February 1995.
On 17 February 1995, Nagy received from the Authority a letter advising it was making available financial adjustment assistance for milk distributors and vendors who did not enter into a contract with a licensed dairy produce factory. The Authority forwarded an application form for assistance together with terms and conditions of such assistance and an information paper.
On 8 June 1995, the Authority wrote to Nagy stating that if assistance from the Authority was required then an application was required to be lodged before 1 July 1995. In response to this letter on 20 June 1995, Nagy applied for assistance under the Act on the basis that they had no alternative. They subsequently received the DAAS payments totalling $200,000, which was the upper ceiling placed on assistance by the Authority.
On 28 August 1995, in accordance with the requirements of the Authority as a condition of receiving assistance, Nagy entered into an agreement with the Authority which contained the following provisions:
"RECITALS:
A. The Authority had decided to implement the Scheme to assist those engaged in milk distribution to adjust to the termination of licensing.
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2. ENGAGEMENT IN THE INDUSTRY
2.1 In consideration of the Borrower covenanting and undertaking to the Authority that it shall not be engaged in any manner nor received [sic] any payment (whether by way of salary, wages, dividends, kind or otherwise) nor have any legal or beneficial interest, actual or contingent, in the business of milk distribution or milk vending in the State of Western Australia, the Authority shall pay to the borrower the Principal Sum on the terms and conditions specified by this Agreement.
2.2 The Covenantors, in consideration of the payment by the Authority by clause 2.1 and advanced pursuant to the provisions of clause 3 of this Agreement, have entered into this Agreement with the Authority and the Borrower and have agreed to provide the representations, warranties and covenants contained in this Agreement.
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4. REPAYMENTS
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4.1 The Borrower shall repay the Money Secured in full to the Authority upon demand on or before the Date for Repayment if the Borrower, the Covenantor or any associated Person breaches any of the terms of this Agreement.
4.2 If no demand is made by the Authority prior to the Date for Repayment, the Borrower shall be no longer obliged to repay the Money Secured and neither the Borrower nor the Covenantors shall be liable to the Authority with respect to the Money Secured.
...
8. EVENTS OF DEFAULT
The Money Secured shall become immediately due and payable at the option of the Authority on demand (notwithstanding any delay or previous waiver of the provisions of this clause by the Authority) upon the happening of any one or more of the following events:
8.1 If the Borrower or the covenantor defaults in the payment of any part of the Principal Sum or any interest as agreed to be paid or in the payment of any other money payable under this Agreement after the day on which the payment is due;
8.2 If the Borrower, the Covenantors or any other parties fail to observe and perform any of the covenants contained in this Agreement;
8.3 If a petition is presented or an order is made or an effective resolution is passed for the winding up or dissolution of the Borrower or any of the Covenantors or a meeting is summoned or convened for the purpose of considering such a resolution;
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8.7 If the Borrower, any Covenantor or any Associated Person acquires an interest actual or contingent and whether legal or beneficial, in any business distributing or selling milk prior to the Date of Repayment;
...."
Legal principles
There was no significant dispute between the parties as to the legal principles to be applied in respect of the effect of third party payments on the award of damages. Rather the dispute turned on the application of those principles to the circumstances of the present case. However, it is helpful to consider some of the authorities referred to in submissions in order to appreciate the way in which those principles have been applied.
The starting point in determining what payments should be taken into account when assessing damages is the High Court decision in The National Insurance Company of New Zealand Limited v Espagne (1961) 105 CLR 569. The Court in that case decided that, in calculating damages for personal injury caused by negligence, the amount of an invalid pension, including one for permanent blindness to the injured plaintiff under Social Services legislation, was to be disregarded both in its operation up to the date of trial and in relation to its future operation. In reaching his conclusion on this point, Dixon CJ said at 573:
"The reasoning begins with a distinction which I think is clear enough in general conception. There are certain special services, aids, benefits, subventions and the like which in most communities are available to injured people. Simple examples are hospital and pharmaceutical benefits which lighten the monetary burden of illness. If the injured plaintiff has availed himself of these, he cannot establish or calculate his damages on the footing that he did not do so. On the other hand there may be advantages which accrue to the injured plaintiff, whether as a result of legislation or of contract of benevolence, which have an additional characteristic. It may be true that they are conferred because he is intended to enjoy them in the events which have happened. Yet they have this distinguishing characteristic, namely they are conferred on him not only independently of the existence in him of a right of redress against others but so that they may be enjoyed by him although he may enforce that right: they are the product of a disposition in his favour intended for his enjoyment and not provided in relief of any liability in others fully to compensate him. This is readily seen in the case of benevolence."
After reviewing the authorities and a number of learned articles, Windeyer J at 599 concluded:
"In assessing damages for personal injuries, benefits that a plaintiff has received or is to receive from any source other than the defendant are not be regarded as mitigating his loss, if: (a) they were received or are to be received by him as a result of a contract he had made before the loss occurred and by the express or implied terms of that contract they were to be provided notwithstanding any rights of action he might have; or (b) they were given or promised to him by way of bounty, to the intent that he should enjoy them in addition to and not in diminution of any claim for damages. The first description covers accident insurances and also many forms of pensions and similar benefits provided by employers: in those cases it is immaterial that, ... the contract may require a refund of moneys paid, or an adjustment of future benefits to be made after the recovery of damages. The second description covers a variety of public charitable aid and some forms of relief given by the State as well as the produce of private benevolence. In both cases the decisive consideration is, not whether the benefit was received in consequence of, or as a result of the injury, but what was its character: and that is determined, in the one case by what under his contract the plaintiff had paid for, and in the other by the intent of the person conferring the benefit. The test is by purpose rather than by cause."
These principles have been frequently cited and applied in subsequent cases.
In Graham v Baker (1961) 106 CLR 340, the High Court decided that in assessing damages for personal injuries to a plaintiff, who has been compulsorily retired because of the injuries, no deduction was to be made in respect of pension payments which accrued to and were paid to the plaintiff between the date of the compulsory retirement and the date on which he would have retired in the ordinary course of events. However, their Honours considered that, in assessing common law damages, account should be taken of payments made by the employer during the period of sick leave to which the plaintiff was entitled under an industrial agreement. The Court noted (at 343) that the pension rights had an additional and distinguishing characteristic; namely, that they were conferred independently of the existence of a right to redress against others and were capable of enjoyment by him although he enforced that right.
Their Honours considered that the pension rights were the product of a disposition in his favour, intended for his enjoyment and not provided in order to relieve others of any liability to compensate him. In the case of sick pay, however, their Honours decided that the plaintiff's entitlement constituted "wages" and was therefore in a different category. They pointed out that where, by virtue of an implied term of a contract of employment, wages are payable to an employee who is absent from work by reason of illness, the amounts received during the period of absence are, in effect, his ordinary wages and not something additional or of a different character.
An example of the application of the principles in Espagne's case to what may be described as a "benevolent" payment can be found in the Victorian Supreme Court decision in Wollington v State Electricity Commission of Victoria (No 2) [1979] VR 91. In that case the Full Court held that, when assessing damages for loss of the plaintiff's property in a bush fire caused as a result of the negligence of the Electricity Commission, ex gratia payments by the State Government to the plaintiff should not be deducted from the amount of damages otherwise payable. The basis for the decision was that the ex gratia payments were received by the plaintiff independently of the existence in him of any right of redress against others. The ex gratia payment could be enjoyed by the plaintiff even though he was also entitled to enforce his right for damages.
The question as to the effect of payments by an outside party or body was again considered in Redding v Lee (1982) 151 CLR 117, where it was held that in assessing damages in a common law action for personal injury caused by negligence, actual and prospective payments of an invalid pension granted for permanent incapacity to the injured plaintiff under social security legislation, should be disregarded. In that case the Court applied the principles enunciated by Dixon CJ and Windeyer J in Espagne.
In Manser v Spry (1994) 181 CLR 428, the High Court had to consider whether compensation benefits paid or payable under s 54 of the South Australian Workers Rehabilitation and Compensation Act 1986 (SA) were an ordinary incident of a worker's employment which must be taken into account in assessing the damages payable to him by a tortfeasor liable at common law. In a joint judgment, the Court decided that in order to ascertain whether a statutory benefit possesses the "distinguishing characteristic" that it is to be enjoyed independently of, and cumulatively upon, the right to damages the Court must endeavour to discover the intention of the legislature. The three possible indicia of a relevant legislative intention were (at 436):
- The financial sources of the benefit;
* The presence of a provision which requires a repayment of a statutory benefit out of the damages awarded or paid, and
- The nature of the benefit.
The Court had regard to these matters in Harris v Commercial Minerals Limited (1996) 186 CLR 1 at 16-17, where it decided that the primary Judge in awarding damages for personal injury had erred in not deducting future benefits recoverable under the Workers Compensation (Dust Diseases) Act 1942 (NSW) and that common law courts should regard benefits under that Act as compensation for injury and also as a substitute for wages lost.
In applying the Manser criteria, the Court noted that the source of the benefit was the money derived from the Workers Compensation (Dust Diseases Fund), which in turn was funded by the employer. The Court considered that the scheme of statutory payment was different from a statutory contributory pension fund, which was funded by both employers and employees and under which the benefits were to be enjoyed by an injured person without reduction of damages. The Court pointed out at 17:
"Here employers alone are the principal contributors to the fund that provides the benefits. It is difficult to conclude that parliament intended that the employers should fund benefits paid for injuries suffered in the course of employment and at the same time have to make a payment by way of damages for those injuries. The financial source of the benefits therefore indicates that the benefits should be deductible from awards of damages in respect of injuries giving rise to the benefits."
The Court then proceeded to analyse the nature of the benefit and concluded (at 18) that:
"...the nature of the benefit enjoyed ... does not point to a legislative intention that the benefits should not be deductible from awards of damages in respect of injuries giving rise to those benefits.