W & K Consulting Pty Ltd v Leda Management Services as trustee for Leda (NSW) Finance Trust (No 3)

Category: Consequential orders

Parties: W & K Consulting Pty Ltd ACN 159 180 819 (plaintiff)
Leda Management Services Pty Limited as trustee for Leda (NSW) Finance Trust ACN 003 467 605 (defendant)

Representation: Counsel:
Mr J R Anderson (defendant)
Solicitors:
Boyd House & Partners (plaintiff)
Baker McKenzie (defendant)

File Number(s): 2023/00419442

Publication restriction: Nil

JUDGMENT

1. On 16 June 2025 I delivered my reasons for judgment in these proceedings (W & K Consulting Pty Ltd v Leda Management Services as trustee for Leda (NSW) Finance Trust (No 2) (District Court (NSW), Andronos SC DCJ, 16 June 2025, unrep)). I found that the defendant was in breach of an obligation to provide the plaintiff with reasonable notice in the event of termination of its implied consultancy agreement. In the circumstances of termination on 31 August 2020, I found that period was five months.

2. When I delivered my reasons, I made orders directing the parties to liaise as to agreed Short Minutes of Order required to give effect to those reasons and as to costs and, if no such agreement could be reached, the proceedings were to come back before me for directions.

3. The parties were unable to agree on the form of orders, although they did agree that costs should follow the event and the plaintiff should have its costs as agreed or assessed on the ordinary basis.

4. Two matters remain outstanding:

5. Whether the calculation of damages on the basis of five months’ notice is to be assessed on the basis of dividing the annual payment by 12 and then multiplying it by 5, or whether it is calculated on the basis of 5 times the monthly invoice, as it had been rendered by the plaintiff prior to termination; and

6. Whether damages should be calculated inclusive or exclusive of GST.

Five months

5. The plaintiff submitted that five months’ notice should simply be calculated by reference to the monthly invoices that had been rendered immediately prior to – and immediately following – termination. The plaintiff’s submission was that, as each monthly invoice was in the sum of $31,363.64 (+ GST), the notice component of damages should be five times that sum, less invoices that have been paid and JobKeeper payments received. The total due is, therefore, $136,598.21 (ex GST). When other elements of damages are included (the unpaid balance of the August 2020 invoice, long service leave as agreed and interest) the sum sought by the plaintiff, by way of judgment, is $177,622.10 (exclusive of GST but inclusive of interest to 27 June 2025). If GST is included, the judgment amount would be $194,940.28.

6. The defendant does not agree with the plaintiff’s calculation. It says that the governing principle is that the plaintiff was paid an annual salary and five months’ fees, by way of damages for inadequate notice, should be calculated with reference to the annual fee, not the monthly invoices. It says that the mechanism of monthly invoices, in which each was calculated as 1/11 of the annual fee, was a matter of administrative convenience which reflected the fact that the plaintiff was only required to make Mr Holborow available for work 11 months of the year. The governing obligation arose from cl 9 of the Consultancy Agreement, which still had effect in the implied agreement that arose in 2013.

7. Clause 9 of the Consultancy Agreement provided:

| “9. BASE CONSULTANCY FEE: | In consideration for the provision of Services in accordance with this agreement, Leda will pay the Consultant the sum of Three Hundred and Twenty Five Thousand Dollars ($325,000) per annum (exclusive of GST). This Fee will be paid at the monthly rate of Twenty Nine Thousand, Five Hundred and Forty Five Dollars ($29,545.00) + GST It is specifically acknowledged that the Consultant is not required to provide the Services for a period of four (4) weeks for each year served during the course of this agreement. The Consultant will provide Leda at least four (4) weeks notice of any Consultant planned absences, and the Consultant will not be entitled to claim any Fee during these absences.” |

8. The entitlement of $325,000 p.a. was amended to $345,000 p.a. by the Deed of Agreement executed on 14 November 2019.

9. The Consultancy Agreement provides no textual assistance in the construction of the relevant aspect of this clause. The termination provision, for example, only provides for termination on the basis of 45 days’ notice with the defendant to pay the plaintiff the unexpired portion of the fixed term in the event of early termination by it. Similarly, there was nothing in the evidence as to the circumstances at the time of contract that would assist in construing the clause.

10. The relevant principles of construction are set out in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, where French CJ, Nettle and Gordon JJ stated at [46] to [51] (footnotes omitted):

“[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

[50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.

[51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption ‘that the parties ... intended to produce a commercial result’. Put another way, a commercial contract should be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.”

11. Having heard the submissions of Mr Anderson, for the defendant, and Mr Emanuel, for the plaintiff, I consider that the proper construction of cl 9 of the Consultancy Agreement requires that the plaintiff be paid on the basis of five months of invoices, rather than 5/12 of the annual Consultancy Fee. I have reached this conclusion for the following reasons:

12. The contract contemplates that the cycle of invoicing mirrors the periods for which the plaintiff provides the services of Mr Holborow. Accordingly, it contemplates 11 invoices and an 11-month working year, with the plaintiff being remunerated for each month that Mr Holborow works. A month is the relevant unit of time with respect to which an entitlement to remuneration accrues.

13. The payment regime contemplates that there is one month in the year in which the plaintiff does not provide services and for which it is not remunerated. This is not averaged out across the year and does not affect any other invoices. It would affect only that month in respect of which notice is given.

14. The annual Consultancy Fee is itself 11 times the monthly Fee. Whether the monthly Fee is a function of the annual Fee or vice versa is immaterial. The relationship between them is that one is 11 times the other or, to express the inverse of the same relationship, one is one-eleventh of the other.

15. There is no warrant to calculate five months of Fees as five-twelfths of the Annual Fee. On its proper construction, the agreement would permit either five months of fees or four months of fees if there was evidence, or an inference could be drawn, that the plaintiff would have given notice of its intention to take leave during the five months from September 2020. I am not satisfied that the evidence supports such a finding and the defendant did not put its argument that way in any event. The presumptive position is that the plaintiff would have provided Mr Holborow’s services for the whole of that period. In the ordinary course, the plaintiff would have rendered a monthly invoice for each month and would have been paid accordingly.

16. The plaintiff’s construction better accords with the commercial purpose of the implied agreement as a whole. The purpose for the implication of a reasonable notice provision, as described in Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438, and as applied to employment cases and their analogues, is to afford a terminated party an opportunity for the employee to find alternative employment. The continuity of remuneration on the same basis as had informed the parties’ relationship prior to termination is, in my view, axiomatic. This does not permit calculation of the sum due on any different basis, including by reference to 12 months of remuneration when the contract, itself, provided for its calculation on the basis of 11 chargeable months per year.

GST

12. The defendant submitted that judgment should be exclusive of GST, relying on the principle that GST is not payable on a damages award made by a court in circumstances where the claimant is eligible to receive an input tax credit in respect of its expenses: Gagner Pty Ltd v Canturi Corporation Pty Ltd (2009) 236 FLR 401; [2009] NSWCA 413 at [147]–[151] (Campbell JA, Macfarlan JA and Sackville AJA agreeing).

13. Gagner is the right case, but the principle referred to is not apposite. The passage relied on applies where a plaintiff is compensated for costs which themselves become input costs and for which it is entitled to a tax credit. That statement of principle does not apply in the present case.

14. The relevant principle was stated in Gagner at [157]:

“Damages Award Itself Subject to GST?

[156] Mr Brender, counsel for the Respondent, put forward in oral argument an alternative basis for allowing GST. It was that the damages award itself would be subject to GST. I do not accept that argument.

[157] An essential prerequisite for there being an obligation to pay GST concerning (relevantly for present purposes) a supply of goods or services is that there is a ‘taxable supply’. Under s 9–5 GST Act, an essential prerequisite of there being a ‘taxable supply’ is that ‘you make the supply for consideration’. The Australian Taxation Office has issued a public ruling, GSTR 2001/4, concerning the GST consequences of court orders and out-of-court settlements. It states, at [60], that ‘a court, in giving judgment, does not make a supply for GST purposes’. Nor is there any relevant ‘taxable supply’ involved in the events that led to litigation such as the present. At [71]–[73] the ruling considers situations, including ‘claims for damages arising out of property damage’ and concludes:

‘This damage, loss or injury, being the substance of the dispute, cannot in itself be characterised as a supply made by the aggrieved party. This is because the damage, loss or injury, in itself does not constitute a supply under section 9-10 of the GST Act.’

[158] Nor would a judgment in the present case later, of itself, generate a liability for GST. The ruling says, at [61]:

‘The payment, in money, of a judgment debt will not itself be a supply for GST purposes. It is excluded from being a supply under subsection 9-10(4).’

[159] When this public ruling has been issued, it decides for practical purposes the way in which the GST legislation will be administered. It would be pointless for me to examine in any more detail the correctness of the Commissioner’s views expressed in that ruling.”

15. Similarly, in Padstow Corporation Pty Ltd v Fleming (No 3) [2013] NSWSC 24, Gzell J, a highly regarded revenue lawyer, stated:

“[32] It was submitted on behalf of Fleming Jnr that damages should not be calculated on the basis that GST is to be included because no liability to collect and remit GST will arise in respect of an award of damages.

[33] The Commissioner of Taxation accepts that an award of damages by a court and its payment is not a taxable supply by the court: GST Ruling GSTR 2001/4 at [60].

[34] However, the Commissioner asserts in GSTR 2001/4 at [116] that if there is a sufficient nexus between an amount awarded and a supply, GST may be payable.

[35] In my view, that is wrong. An award of damages made by a court is payable solely in consequence of the court’s order, not in consequence of the underlying dispute. ...”

16. There is no evidence that the plaintiff is liable to account to the Commissioner for any GST collected. On the basis of Gagner and Padstow*,* therefore, I find that the damages due to it ought be assessed on an exclusive of GST basis.

Conclusion

17. Damages based on five months’ notice should be assessed on the basis of 5 times the monthly invoice and exclusive of GST. Taking into account other matters agreed or recorded in my earlier reasons, this amounts to $136,598.21 (ex GST) as follows:

| 5 months’ notice x $31,363.64 per monthly invoice | $156,818.20 | | Balance of August 2020 invoice | $16,363.64 | | Long service leave as agreed | $11,580.00 | | Less September 2020 invoice paid | ($31,363.63) | | Less JobKeeper payments | ($16,800.00) | | Total | $136,598.21 |

18. Interest on the judgment sum of $136,598.21 at court rates from 31 August 2020 to today amounts to $41,822.71.

19. The parties have agreed that when final orders are made that the amount paid into Court by the plaintiff as security for costs should be paid out of Court to the plaintiff. I will make an order to that effect.

Orders

20. Accordingly, the Court makes the following orders:

21. Judgment for the plaintiff in the sum of $178,420.92 inclusive of interest.

22. The defendant pay the plaintiff’s costs as agreed or assessed on the ordinary basis.

23. The amount of $150,000 paid into Court by the plaintiff as security for the defendant’s costs be paid to the plaintiff forthwith.

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