White J

Supreme Court of Queensland


Judgment date: Judgment delivered 23 June 2000

White J

On 12 May 2000 the parties made submissions as to the orders which ought to be made in respect of the costs of the action including a number of reserved costs.

2. On the same day submissions were made on behalf of the plaintiff that the judgment in the action made on 18 April 2000 be varied by adding an order that the third defendant indemnify it in respect of any future liability to pay GST as defined in A New Tax System (Goods and Services Tax) Act 1999 (Cth).

[Costs of the Action and Costs Orders not reproduced.]

A Goods and Services Tax Indemnity

44. The plaintiff seeks to have the court vary the order which was made effective from 18 April 2000 giving judgment, inter alia, against the third defendant for approximately $28m. The UCPR in r 667 permits a court to vary an order in certain circumstances and those circumstances have been met. The plaintiff seeks to vary paragraph 2 of that order by adding the following declaratory relief

``I declare that if Commissioner of Taxation seeks remittance from the plaintiff of, or otherwise holds the plaintiff liable to pay, any GST as defined in A New Tax System (Goods and Services) Tax 1999 (Cth) in relation to any and all sums and benefits (whether monetary or otherwise) (`the Benefits') whatsoever awarded to the plaintiff under this judgment, then

  • (i) the plaintiff is entitled to be indemnified for any Goods and Services Tax for which it is liable to pay to the Commissioner of Taxation; and
  • (ii) the plaintiff is entitled to be indemnified for all costs and expenses on a solicitor and own client basis in the proper defence of any claim for the payment of any Goods and Services tax in respect of the Benefits.''

45. The obligation to pay Goods and Services Tax (GST) becomes effective from 1 July 2000. There is presently an informal stay in place in respect of the judgment sum. The plaintiff has been unable to secure any ruling from the Australian Tax Office as to whether there will be any liability to pay GST on the judgment sum if paid in whole or in part after 1 July 2000. An appeal will be heard in respect of the judgment in the action and ancillary judgments in the Court of Appeal at some unspecified time.

46. The plaintiff submits that on the proper construction of the present legislation imposing a GST, A New Tax System (Goods and Services Tax) Act 1999 (the ANTS Act) in certain circumstances GST may be payable on a judgment sum. There are no provisions in the GST legislation dealing expressly with judgment debts that do not arise from liabilities covered by insurance policies.

47. The plaintiff relies upon
Tuite & Anor v Exelby & Ors 93 ATC 4293 where Shepherdson J provided for a sum for capital gains tax which might be payable on his judgment. However on appeal it was conceded that it could not be justified and the judgment was accordingly reduced, Exelby v Tuite unreported decision of 28 November 1994 (BC 9404190).

48. The plaintiff also relies upon the judgment of Rolfe J in
Provan v HCL Real Estate Limited & Ors 92 ATC 4644 where his Honour made a declaration that the defendant indemnify the plaintiff in respect of any liability to pay capital gains tax on the judgment. In the course of his reasons his Honour noted that the capital gains tax was liable to be paid because of the negligence of the defendants. Mulligan J took a similar approach in
The Duke Group Ltd (in liq) v Pilmer (1998) 16 ACLC 567; (1998) 144 FLR 1 and concluded that the liability to pay capital gains tax was a real possibility and formed part of the plaintiff's damages. The plaintiff submits that but for the negligence of the defendants any payments pursuant to the Development Agreement would have been made long before the imposition of a GST was contemplated.

49. In
Carborundum Realty Pty Ltd v RAIA Archicentre Pty Ltd 93 ATC 4418 Harper J distinguished Provan's case on the basis that the liability to pay capital gains tax on the transaction arose, if it arose at all, because of the defendants' breach.

50. The damages which are now sought to be included in the judgment were not pleaded nor made an issue in the trial. It is not the case that this new tax has recently come into the Australian community. Its imposition was made clear, at least from the commencement of the trial, and there was ample opportunity to formulate such a head of damage and to deal with it in a timely and appropriate manner. In

ATC 4554

after Harper J had delivered judgment the plaintiff sought to amend its statement of claim to include as a head of damages an award to compensate the plaintiff in respect of its liability to capital gains tax under the Income Tax Assessment Act. Alternatively it sought a declaration that if found liable it was entitled to be indemnified by the defendants. The plaintiff in that case did have a private ruling from the Australian Tax Office to the effect that any damages awarded would be considered a capital gain assessable to the plaintiff pursuant to the Income Tax Assessment Act. Harper J was of a contrary view and also concluded that such a head of damage was too remote a consequence of the breach of the subject contract and would also be too remote for an action in negligence. Neither was his Honour attracted to a course which left the judgment inconclusive or incomplete.

51. There are other issues which would need to be examined, for example, the net effect of other tax payments and whether or not the plaintiff had a threshold turnover in order to raise the potential of a GST liability. There must be some foundation in law for requiring the third defendant to indemnify the plaintiff for any liability for GST. It must arise as a consequence of the negligence of the third defendant and the plaintiff has failed to advance any argument to support this. There is no apparent recognition of the limiting effect of remoteness of damage. On any view, the potential liability to pay GST was not reasonably foreseeable at the time when the breach occurred. These uncertainties are sufficient to refuse the relief sought but I will make some brief comment on the legislation.

52. The central provision of the legislative scheme is that GST is payable on taxable supplies (s 7-1). A supply includes

  • • a supply of goods; services;
  • • a provision of advice or information;
  • • a grant, assignment or surrender of real property;
  • • a creation, grant, transfer, assignment or surrender of any right;
  • • a financial supply;
  • • an entry into or release from an obligation;
  • • any combination of those matters.

A supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money (s 9-10(4)).

53. It is not easy to see how a court giving judgment or the payment of a judgment sum or the granting of a stay of execution could constitute a ``supply'' within the meaning of those expressions.

54. A taxable supply is made if the supply is made for consideration (s 9-5(a)). Consideration includes matters done pursuant to orders of a court (s 9-15(2A)(a)) but that does not of itself constitute a supply. The receipt of payment by a judgment creditor does not obviously involve the creation, grant, transfer, assignment or surrender of any right or the entry or release from an obligation (s 9-10(2)(e)(f)). When the judgment is satisfied the debt created by the judgment is thereby extinguished and does not depend on the surrender of any rights or the release of the judgment debtor.

55. The provisions relating to payments by insurers in settlement of claims are set out in s 78 which exempt a payment made in the settlement of a claim under an insurance policy and may apply here should there be held to be a supply by the payment of the judgment.

56. Further the settlement of an insurance claim is not a taxable supply to the extent that the event giving rise to the claim happened prior to 1 July 2000 (s 22 of the Goods and Services Transition Act 1999).

57. It seems unlikely that the payment of interest on the judgment pursuant to the Supreme Court Act 1995 could be described as consideration for a ``right or option to acquire a thing... granted'' and does not readily fall within the definition of consideration in s 9-15(3).

58. Accordingly, for a number of reasons, I am not persuaded that the order sought to be varied should be made. The application is very late. It could have been claimed by amendment to the pleadings or raised in the course of the trial after the nature of the tax was revealed by the Australian Tax Office, or at some other reasonable time to enable it to be fully explored. There is no basis for such a head of damage being recovered from the third defendant. It is too remote a consequence of the negligence of the third and fourth defendants. The uncertainty surrounding the quantum of tax means that the third defendant would be unable finally to settle this matter. Finally, I am not

ATC 4555

persuaded that there is any potential liability for GST.

59. I decline to make the orders sought in the application including the declaration. The plaintiff should pay the third defendant's costs of this application.

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