The National Insurance Company of New Zealand v Espagne

Year 1 Year 2 Year 3 Predicted Gross Profit for each year a 255,654.0 255,654.0 255,654.0 Less reduction in margin to chain stores (35,000.0) (8,400.0) (8,400.0) Predicted Net Profit 220,654.0 247,254.0 247,254.0 Less loss of profits from Brownes' products b (56,046.1) (62,802.5) (62,802.5) Less Expense (111,651.0) (111,651.0) (111,651.0) Less Depreciation on Van c see note c see note c (8,378.0)c Net profit before tax 52,956.9 72,800.5 64,422.5 Discount Formula 52,956.9 72,800.5 64,422.5 (1 + 7.8%)0.5 (1 + 7.8%)1.5 (1 + 7.8%)2.5 Present value of lost profits for each year 51,005.0 65,043.8 53,393.8 Net Present Value of Net Profits 169,443 (51,005 + 65,044 + 53,394) (Emphasis added)

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. .... 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. ... 4. REPAYMENTS ..... 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; .... 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.

Consequently, the common law courts should regard benefits under the Dust Diseases Act as compensation for injury and as a substitute or partial substitute for wages lost. Because the fundamental rule in an action for damages for tort is that a plaintiff cannot recover an amount more than he or she has lost, payments under that Act are deductible from any award of damages payable in respect of injuries that give rise to those benefits." The principles enunciated in Harris were applied by the New South Wales Court of Appeal in CSR Limited v D'Arcy (1996) 40 NSWLR 721, where the majority of theCourt stated that a claimant for common law damages is required to mitigate his or her loss and that if a plaintiff unreasonably fails to do so, the sum which might be recovered under the Act has to be taken into account as a deduction in making an assessment of common law damages. In that case, the Dust Diseases Tribunal of New South Wales included an amount in the assessment of common law damages for future medical expense, notwithstanding that the plaintiff had an entitlement to receive an award for such expenses from the Dust Diseases Board by way of workers compensation. The basis for the decision of the Tribunal was that the plaintiff did not intend to apply for such an award. After referring to the duty to mitigate damages, the majority of theCourt held that the common law damages must be reduced by the amount of future medical expensesthe plaintiff was entitled to recover under the legislation. The principles expressed in Espagne are not confined to personal injury cases. In Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 104 ALR 397, the Full Court had to consider whether moneys received from a third party should be taken into account in diminution of damages awarded under s 52 of the TPA. In that case, as a result of fraudulent misrepresentations, the applicant was induced to enter into transactions which involved the purchase of carpet from a manufacturer in New Zealand and its sale to the respondent below cost. The question raised was whether the trial judge erred in not reducing the applicant's damages to reflect its actual loss by reason of a settlement reached with the New Zealand supplier. That settlement occurred when the New Zealand supplier agreed to assist the applicant by reimbursing it for part of the costs of an advertising campaign in Australia designed to promote the New Zealand supplier's products and increase the sales of the applicant. The trial Judge found that the benefits so conferred on the applicant by the third party were not intended to be in diminution of any legal rights which the applicant had against the respondent. The Full Court, by majority, dismissed the appeal and held that benefits conferred on an applicant independently of a right of redress against others are not to be taken into account in diminution of damages. In his reasons for judgment in that case, Burchett J (with whom O'Loughlin J agreed) referred to the principle in British Westinghouse Electric and Manufacturing Co Limited v The Underground Electric Railways Co of London Ltd [1912] AC 673, where reference was made to the obligation to mitigate damages. His Honour referred to the statement by Viscount Haldane LC in British Westinghouse (at 689) that, where a plaintiff: "...in the course of his business ... has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act." In Monroe Schneider, Burchett J decided that this principle did not assist the respondent because the advertising assistance extended by the New Zealand manufacturer was a distinct transaction involving separate obligations in respect of advertising and promotion and was unrelated to the cause of action in fraud and the loss flowing from it. Finally, the Court was referred to the decision of the House of Lords in Longden v British Coal Corporation (1997) 3 WLR 1336, where it was held that incapacity and disability pensions were, because of their special nature, exceptions to the general rule that all receipts resulting from an accidents have to be set off against losses due to the accident. Consequently, where such sums were recovered by the plaintiff during the period prior to normal retirement age, they did not fall to be deducted from his claim for loss of retirement pension. However, the lump sum received by him on resignation had to be apportioned between the periods before and after normal retirement age and those payments attributable to post retirement had to be set off against his damages claim because it represented the commutation of annual payments that he would otherwise have received during the same period. In the leading speech delivered by Lord Hope, emphasis was placed on the necessity to compare "like with like". His Lordship said at 1351 : "I think that it is clear that, in order to compare like with like, the plaintiff should be required to set against his claim for loss of the retirement pension an appropriate portion of the lump sum which he received on his retirement on the ground of incapacity. This is for the same reason as that which explains why the annual payments by way of the incapacity pension must be brought into account. These annual payments will be received as income during the same period as that to which the claim for loss of pension relates. So it is right also to bring into account that part of the lump sum which represents the commutation of a part of the annual payments which he would otherwise have received as income during the same period." In the above passage, his Lordship adverts to the need to closely examine the nature and purpose of the payment in the light of the surrounding circumstances in order to determine whether there is such a similarity between the character and the purpose of the payment so as to require an adjustment in order to prevent double compensation in respect of the same wrongful act or omission. The present case The parties are in agreement that the question in the present case is one of the characterisation and effect of the DAAS payment. The primary contention of Masters is that if Nagy is able to retain both the damages award of $169,443 together with the DAAS payments of $200,000 then it will be compensated twice in respect of the same loss. There is no suggestion in the present case of any repayment being made to the Authority of the DAAS payments. Accordingly, Masters contends that no damages are payable by it. The DAAS payment in this case fall to be characterised according to the provisions of s 91 of the DIA Act and the scheme of deregulation, including the contract pursuant to which the payments were made. The entitlement to make an application for grant of the DAAS payments and the making of those payments existed quite independently of any claim which any industry member might have to receive damages for breaches of s 52 of the TPA or indeed of any claim for damages whether common law or otherwise. It is pointed out by Masters that Nagy's claim in damages from Masters is calculated by reference to lost profits on the basis that the contract, which would otherwise have been entered into, was for a three year period. It is also said that the amount of assistance determined by the Authority was clearly related to turnover figures of the applicant's business, as independently assessed by Coopers & Lybrand for the Authority. However, in our view, this is not the same as compensation for loss of profits. The precise way in which the assessment was made by Coopers & Lybrand is not clear but it is apparent that the payment was made to assist Nagy in return for agreeing not to engage or be interested in the dairy industry for a three year period. In substance, the payment is compensation in the nature of a capital sum for ceasing business andleaving the industry. It is analogous to compensation for loss of goodwill arising as a consequence of milk vendors being required to quit the industry without the chance to sell their businesses. By contrast, the damages were awarded as compensation to Nagy for loss of income. It is payable because the applicants were successful in their s 52 claim under the TPA for loss of commercial opportunity over a period of three years. If the issue is approached on the basis indicated in Manser and Harris, then the circumstances must be examined in the light of the three indicia referred to in those cases. The first of these indicia is the financial source of the benefit. While there is little evidence as to the exact source of the payment, there is an indication in the Minister's Second Reading Speech of 29 November 1994, that provision is made in the Amendment Bill for the Authority to continue to operate a distribution adjustment assistance scheme to assist milk vendors to adjust to deregulation and ease their exit from the industry. The Minister goes on to say that this has been funded from Authority reserves and in the past was made available to vendors retiring from the industry and trading in their businesses to existing vendors. It is reasonably clear that the financial source for the benefit comes from Authority funds and does not in any sense derive from the resources of Masters. This circumstance is to be contrasted with the position in Harris, where the "financial source" of the benefit payment was the employer, who was also the person liable in respect of the common law damages. The second consideration, referred to in both Manser and Harris, is whether there is any provision which requires a repayment of the statutory benefit if damages are awarded. In the present case there is no express provision in either the legislation or the contract. Under cl 4.1 of the contract, repayment is based on breach of the contract with the Authority. If the legislation had intended that there be any offset it could easily have made express provision to this effect. The reality of the matter is probably that circumstances such as the present case were never envisaged by the draftsperson. The third consideration is the nature of the benefit. In the present case the benefit is directed to assist in the relief for the loss of a businessoccasioned by an industry-wide rationalisation and deregulation. The amount of the payment is calculated with a view to compensating industry members who cease their businesses and will not seek to re-enterthe industry forat least three years. The character and purpose of the payment are not replicated in the pecuniary loss suffered by Nagy by reason of the misleading ordeceptive conduct on the part of Masters. Accordingly, when the criteria referred to in Manser and Harris are applied to the circumstances of the present case, the appropriate conclusion is that there is no discernible legislative intention that the DAAS payment should be taken into account as a deduction from the damages awarded pursuant to the TPA. To paraphrase the language of Dixon CJ in Espagne, the DAAS payments are conferred on Nagy independently of the existence of a right of redress against others. The DAAS payments are the product of an unrelated disposition in favour of the Nagys and were intended for their enjoyment. They were not designed to relieve any liability in Masters to compensate Nagy for wrongdoing. It was submitted that the application for the DAAS benefit could properly be said to have arisen out of the transaction giving rise to the damages, so as to diminish the loss suffered by Nagy within the principles laid down in British Westinghouse and Monroe Schneider.If the DAAS payment and the payment for pecuniary loss caused by conduct engaged in by Masters arose out of connected circumstances, it would not follow that both payments were of like character. It is purpose, not cause, that is to be considered. Reliance was also placed by Masters on the decision of the New South Wales Court of Appeal in CSR insofar as it was determined that the common law damages awarded should be reduced as a result of the plaintiff's refusal or failure to mitigate by making an application under the Statute. However, in the CSR case, the statutory benefit was considered by the Court to be identical in character and amount with the benefit provided for in the common law damages award for medical expenses. In the present case, the payment is not given in relief of loss or damages suffered by misleading conduct. As the House of Lords indicated in Longden, the important consideration is the need to compare amounts which are of a "like" nature. It is that element which is absent in the present case. The damages and the DAAS payments are not sufficiently alike to require any deduction. There are various lines of authority in relation to the question as to what should be taken into account when estimating the quantum of damages and a slightly different emphasis is apparent in some of the decisions. However, whichever formulation is applied in the present case the conclusion is that, having regard to the legislation, the contract, and the surrounding circumstances, the DAAS payment is different both in character and purpose from the damages awarded pursuant to s 52. There is no question of double compensation for the same or a similar loss. Nagy made no claim for loss of the goodwill of the business Nagy would have carried on under a distribution contract with Masters.In our view it was correct to find, as R D Nicholson J did, that no deduction should be made in respect of the DAAS payment. Accordingly, the appeal is dismissed with costs. I certify that this and the preceding fifteen (15) pages are a true copy of the Reasons for Judgment herein of the Court.

Counsel for the Appellant: Mr M W Odes QC Mr A Hickman

Solicitor for the Applicant: Corrs Chambers Westgarth

Counsel for the Respondent: Mr N P Hasluck QC Mr G I Chitty