Judgment
1On 19 July 2013 I published my principal judgment in these proceedings (Symond v Gadens Lawyers Sydney Pty Ltd [2013] NSWSC 955). I upheld Mr Symond's claim against Gadens Lawyers Sydney Pty Ltd ("Gadens").
2I
found that, in proposing a certain ownership structure of the "Aussie
Home Loans" business (the "Gadens Restructure") and advising as to the
means by which Mr Symond could continue to withdraw funds from that
business supposedly "tax free", Gadens was negligent, in breach of its
retainer and engaged in conduct contrary to s 52 of the Trade Practices Act
1974 (Cth). I found that Gadens was obliged to advise Mr Symond not to
proceed with the Gadens Restructure and instead should have advised him
of three other ways to restructure his business so as to achieve his
objective, with the preferred scenario being the option described as
"Scenario 2" (principal judgment at [8] and [269]ff). I found that, had
that advice been given, Mr Symond would have implemented Scenario 2.
3I
also found that, had that advice been given, the imposition of certain
taxes, penalties, interest charges and a deduction from the franking
account of AHL Holdings Pty Ltd ("Holdings"), as well the payment of
various professional fees, would have been avoided (principal judgment
at [8]).
4In
the principal judgment I addressed certain issues of varying complexity
that had arisen in relation to the quantification of Mr Symond's loss.
I was not able to quantify a verdict in his favour, but instead set out
a methodology for its calculation which addressed, inter alia, the
proceeds of a settlement that Mr Symond negotiated with another firm of
solicitors, Abbott Tout (see principal judgment at [422] to [426] and
[452] to [455]).
5The
only order I made was to stand over the proceedings for further
directions to enable the parties to calculate the quantum of Mr Symond's
damages. In doing so, it became apparent to the parties that certain
issues relevant to the calculation of the final figure needed to be
resolved before a final figure could be determined. Further, Gadens
decided that it would seek to revisit aspects of the principal judgment.
To that end, it filed a notice of motion seeking an order pursuant to r
36.16(3A) of the Uniform Civil Procedure Rules
2005 ("UCPR") or the inherent jurisdiction of the Court to the effect
that the "judgment made by the Court on 19 July 2013 at [423] to [426]
be varied so that interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) is to be calculated on the net amount of damages and not on the components in the calculation thereof".
6At
the resumed hearing of the proceedings it was accepted that the orders
sought in the notice of motion were misconceived. The reference to a
"judgment" in UCPR r 36.16(3A) is a reference to an order or verdict of
the Court, and not to the Court's published reasons (Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 2) [2009] NSWCA 387; 78 NSWLR 190 at [50]; see also R v Ireland
(1970) 126 CLR 321 at 330 per Barwick CJ, McTiernan, Windeyer, Owen and
Walsh JJ agreeing). Gadens is not seeking to vary any order of the
Court. Instead, in respect of certain issues Gadens is seeking leave to
reopen after reasons for judgment have been delivered but before final
orders have been entered.
7On
this further aspect of the hearing and the application to reopen each
party tendered additional reports from their respective financial
experts, Mr Potter and Ms Jones (see principal judgment at [239]).
Based on those reports and the parties' submissions, it became clear
that there are five further issues outstanding. As I will explain, some
of them involve a re-opening of aspects of the principal judgment.
Issue 1: Interest and earnings
8Gadens'
fundamental complaint is that the methodology for quantifying Mr
Symond's damages set out in the principal judgment contemplates the
application of different rates of "interest" or "earnings" on two
integers of the calculation of his claim for damages. Gadens contends
that this discrepancy is unfair and results in Mr Symond being
over-compensated. Mr Symond contends that this was a matter that was
agitated at the hearing and resolved by the principal judgment, that no
proper basis to reopen has been made out, and that it would be unfair to
permit Gadens to do so. He further contends that when the two integers
of the calculation of his loss are properly analysed the complaint of
disparity causing overcompensation is unjustified. To address these
submissions it is necessary to outline how each party put its respective
case on damages and the approach that was adopted in the principal
judgment.
Background
9There
were and are effectively three components to Mr Symond's damages claim.
First, he claimed recovery of the tax and associated penalties that he
was required to pay as a result of the settlement he reached with the
Commissioner of Taxation (the "Commissioner") in 2007 as well as the
costs of the Commissioner's audit of his affairs (principal judgment at
[154] to [156]). He contended that those expenses were incurred by him
as a consequence of his adoption of the Gadens Restructure. In relation
to those amounts Mr Symond claimed interest under s 100 of the Civil Procedure Act
2005 and at the rates identified in Practice Note SC Gen 16 (the "Court
rates"). That claim and the calculation of interest were set out,
inter alia, in the tables accompanying the reports put forward on his
behalf by Mr Potter (and extracted in the principal judgment at [320]).
10Further,
at the trial a detailed joint report was put forward by Mr Potter and
Ms Jones (the "joint report"). In relation to so much of Mr Symond's
claim that sought interest at Court rates on the tax and penalties paid
following the settlement with the Commissioner, Ms Jones stated:
"Ms
Jones understands statutory interest may be awarded to compensate [Mr
Symond] for being deprived of the use of the money claimed to have been
lost. Ms Jones considers the award of statutory interest to be a matter
for the Court."
Gadens' submissions did not address this issue
.
11In
the principal judgment I resolved all the disputed questions concerning
this aspect of the damages claim in Mr Symond's favour (principal
judgment at [330] to [335]). I also found that interest was to be
allowed on these expenses in the manner calculated by Mr Potter and
updated to the time of entry of the judgment (principal judgment at
[422]).
12The
second component of Mr Symond's damages claim concerned the loss
occasioned to Mr Symond, if any, from the deduction in Holdings'
franking account of $5,014,286.00 that occurred as a result of the
settlement with the Commissioner (principal judgment at [155]). I
concluded that this deduction caused a compensable loss to Mr Symond. I
quantified that loss, albeit at a lesser amount than that claimed by him
(principal judgment at [414] and [426]). I allowed interest on that
amount at Court rates from 1 January 2011 (id). Neither party sought to
reagitate any aspect of that matter.
13The
third component of the claim for damages was an offset which was
described as the "Benefit of the Restructure", ie the Gadens Restructure
(see principal judgment at [365] to [376]). This was an amount that
represented the value of the "benefit" that Mr Symond received from
adopting the Gadens Restructure compared with Scenario 2. This
"benefit" arose because under Scenario 2, in order for Mr Symond to
maintain the tax-free status of the amount he would have had to borrow
from the AHLUT to build his house, Holdings would have had to declare
(partially franked) dividends for the financial years 2005 and 2006
("FY05" and "FY06" respectively). This would have resulted in the
imposition of a taxation liability on him (see principal judgment at
[279]). In contrast, by adopting the Gadens Restructure, Holdings was
not obliged to and did not declare any dividends in respect of those
years.
14At
the trial Mr Symond said this "benefit" was only temporary. In the
joint report, Mr Potter stated that "the total amount of tax that Mr
Symond will ultimately be required to pay on the value generated by the
Aussie Group is the same" and "[t]his is because the hypothetical
scenarios [in this case Scenario 2] assume that [AHLUT/Holdings]
earnings from which dividends are distributed will not differ materially
to what was actually earned by [Holdings]". Mr Symond, via Mr Potter,
contended that a "temporary benefit" flowed from the adoption of the
Gadens Restructure in that under Scenario 2 Mr Symond would be required
to pay tax earlier because of the necessity to declare dividends for
FY05 and FY06. Mr Potter sought to quantify this temporary benefit by
projecting the period over which the initial differences between the tax
payments would even out, and applying Holdings' rate of earnings to the
differences over time.
15Gadens,
via Ms Jones, embraced the proposition that there was an offsetting
benefit to Mr Symond from adopting the Gadens Restructure. However, it
contended that it was a permanent benefit and not temporary. It
submitted that there was no reason to believe that under Scenario 2
lesser dividends would be distributed in the years after FY05 and FY06
compared to the events that transpired because greater dividends had
been distributed in those years. Neither Gadens nor Ms Jones
specifically addressed Mr Potter's approach of quantifying the temporary
benefit by applying Holdings' earnings rate to the funds that were
retained by it in the events that transpired, as opposed to being paid
out to meet Mr Symond's liability for dividend income in respect of FY05
and FY06 under Scenario 2. However, in the joint report Ms Jones
appeared to accept the logic of that approach in that she described the
benefit she considered was permanent in the following terms:
"Ms Jones agrees with Mr Potter that a benefit occurs because under the Restructure, AHL Holdings is able to retain earnings which are taxed at a corporate rate of 30% while these earnings are retained in the company." (emphasis added)
16Further,
the joint report included the following statement which on its face
appears to embrace and accept Mr Potter's methodology of quantifying the
temporary benefit that he identified, even if not accepting the
reasoning underlying the conclusion that the benefit was only temporary:
"Whilst
Mr Potter and Ms Jones disagree as to the quantum of tax payable by
[Holdings] and dividends that would be paid by [Holdings] and the
resulting tax that would be paid by Mr Symond in the 'But for' cases, Mr
Potter and Ms Jones have agreed [on] the mathematics and structure,
and amounts of dividends, income tax and timing of payment of them
included in the spreadsheet model worksheets labeled 'Benefit of
Restructure - Scenario 1' and 'Benefit of Restructure - Scenario 2' so
far as they apply to the position they have each adopted. That is, they
agree [with] each other's calculations, subject to their disagreement as
to which assumption as regards to the quantum of tax payable by
[Holdings] and dividends that would be paid by [Holdings] and the
resulting tax that would be paid by Mr Symond is appropriate within the
'But for' cases." (emphasis added)
17In
her oral evidence on this application, Ms Jones was asked where in the
joint report she set out her disagreement with Mr Potter on calculating
the value of the benefit of the Gadens Restructure by reference to
Holdings' rate of earnings on its funds. She responded:
"I
didn't go beyond my opinion it was a permanent benefit. I didn't go on
to then express views as to Mr Potter's time benefit. If I had
actually turned my mind to that my calculation would not only have
included $10.2 million [being the extra tax payable by reference to the
dividends that would have to be declared under Scenario 2 for FY05 and
FY06], it would have also included the benefit of $2.9 million of having
had that benefit permanently in the business."
18I
describe below the approach that Ms Jones now states is the correct
one. At this point I indicate that I accept her evidence that she
simply did not turn her mind to this question. However, that is not
what is suggested by the materials that were presented at trial. Unless
otherwise stated the parties are expected to conduct their case at
trial on the basis that they will identify all of the matters upon which
they join issue, including questions of quantification that will only
arise if their primary case or principal contention on an issue is not
accepted.
19Thus,
at trial, Mr Symond clearly put forward a case which involved the
application of Court rates of interest to the tax, penalties and costs
that he paid and the calculation of the value of the temporary benefit
that he identified by utilising Holdings' rate of earnings on its own
funds. Nothing was said either by Gadens, or Ms Jones, in opposition
to those aspects of his case. To the contrary, paragraph 13 of the
joint report suggested that the use of Holdings' rate of earnings at
least was agreed.
20In
its written submissions in support of its notice of motion, Gadens
contended that Mr Potter's approach to the calculation of pre-judgment
interest "had been adopted without argument by the Court". The
reference to absence of argument can only be to an absence of argument
from Gadens. Being argumentative is not the Court's function and it is
not generally desirable that it act or be described as acting in that
way. The absence of argument on these questions was a circumstance that
arose from a choice by Gadens.
21In
the principal judgment I partially accepted Mr Symond's case concerning
the benefit of the Gadens Restructure. I found that the benefit of the
Gadens Restructure, compared with Scenario 2, was the lower cost (ie
tax) to Mr Symond of extracting the same level of net dividends out of
Holdings (see principal judgment at [373]). However, I also concluded
that Mr Potter's methodology had departed from the rationale said to
support it. I found that, in the events that happened, various
circumstances meant that the Gadens Restructure was able to lock in a
permanent benefit in favour of Mr Symond. These circumstances were the
reduction in his marginal tax rate over time, the fact that under
Scenario 2 Mr Symond would be obliged to receive partially unfranked
dividends in respect of FY05 and FY06 when he did not have to under the
Gadens Restructure and the sale of one-third of his shareholding in
Holdings to the Commonwealth Bank of Australia in the latter part of
2008 (principal judgment at [364] to [370]).
22I
determined that the value of the benefit of the Gadens Restructure
should be calculated by comparing the (tax) cost of distributing the net
dividends that were in fact distributed over the period up to 30 June
2011 by Holdings under the Gadens Restructure and Scenario 2. I
described how this calculation was to be performed as follows:
"374
It follows that there will need to be a recalculation of the reduction
in Mr Symond's taxation liability under Scenario 2 that would have
resulted from the distribution of $30,555,367.00 less in net dividends
than was in fact distributed in the period [from 30 June 2007] up to and
including 30 June 2011. This recalculation, including the differences
in timing of payments of tax (and earnings as per Mr Potter's analysis),
will yield a figure which is to be deducted from the extra tax payable
under Scenario 2. It will diminish the amount referable to the benefit
of the Restructure noted in Ms Jones' table, but increase the amount
shown in Mr Potter's table. The resulting figure for the benefit of the
Restructure will represent those aspects of the benefit of the
Restructure which are permanent, namely the timing differences and the
matters I have described at [364] and [370].
375
The recalculation of this amount should first accommodate a
proportionate reduction in the dividends distributed on 30 June 2007 and
30 June 2008 equivalent to yielding the amount of the settlement sum
paid to the ATO in Mr Symond's hands (because under Scenario 2 Mr Symond
would not have to pay that amount), and then a proportional reduction
of the remaining net dividends in those years and for the period after
the sale to the CBA up to 30 June 2011. They are all to be treated as
though they were fully franked. These calculations will need to
accommodate Mr Symond's 100% shareholding up to October 2008 and his two
thirds shareholding thereafter, as well as any changes in his marginal
rate over that period."
23The
figure of $30,555,367.00 referred to in [374] was a reference to the
dividends that would have been distributed by Holdings referable to the
financial years FY05 and FY06 under Scenario 2 (principal judgment at
[279]). The "extra tax payable under Scenario 2" referred to in [374]
is the tax payable on those dividends, namely $10,212,979.00. The
reference to "earnings as per Mr Potter's analysis" was to Mr Potter's
approach of applying Holdings' rate of earnings to amounts that, in the
events that transpired, Holdings did not pay but would have had to pay
under Scenario 2 (see principal judgment at [352]).
24After
the principal judgment was published, Mr Potter undertook the analysis
contemplated by [374] and [375] of the principal judgment. He concluded
that the benefit of the Gadens Restructure was $6,033,725.00,
$4,339,268.00 being the difference attributable to the three features
that I have identified, and $1,694,456.00 being the amount attributable
to the difference in the timing of the payments under the Gadens
Restructure as compared with Scenario 2. This was calculated by
reference to Holdings' rate of earnings on its own funds.
25In the principal judgment I discussed what was to occur with these figures. I stated:
"422
It follows that the calculation of the loss and damage occasioned to Mr
Symond as a result of Gadens' actionable conduct is to be determined in
the following manner.
423
First, by totalling the items listed in the first four rows of the
table in [320], being the tax, penalties and GIC imposed by reason of
the settlement reached with the Commissioner and the professional fees
incurred, and updating the interest calculation on those amounts.
424
Second, by deducting an amount for the cost of the extra advice
concerning the FBTAA that I have referred to at [317] ($25,000.00) and
the amount allowed for the possibility that further scrutiny beyond the
2005 review might have been necessary in relation to Mr Symond's FBT
exposure ($75,000.00) (see [330]).
425 Third, by deducting an amount for the benefit of the Restructure calculated in accordance with [374] to [375].
426
Fourth, by adding $1,291,178.50 together with interest from 1 January
2011, being the loss occasioned to Mr Symond by the deduction of
$5,014,286.00 from Holdings' franking account."
26I
also indicated how the amount of the settlement from Abbot Tout was to
be accommodated in the ultimate determination of Mr Symond's loss
(principal judgment at [452] to [455]) in a manner that I need not now
outline.
27The
methodology outlined in the principal judgment at [374] to [375] and at
[422] to [426] reflected the manner in which Mr Symond put his case,
namely the claim for interest on the extra tax, penalties and costs at
Court rates and a calculation of the benefit of the Gadens Restructure
which quantified differences in the timing of payments by using
Holdings' rate of earnings on its own funds. I have already noted the
position taken by Gadens and Ms Jones in respect of that. Further, to
the extent that the analysis in the principal judgment in relation to
the calculation of the benefit of the Gadens Restructure involved a
non-acceptance of part of the case put forward by Mr Symond and
proffered a different approach, that difference was not material to the
present matter which concerns the application of different rates to
these two components of Mr Symond's damages claim.
Consideration
28In
oral argument Senior Counsel for Gadens, Mr Donaldson SC, stated that
his client's primary submission was that Holdings' rate of earnings
should be applied to both the first and third components described in
[9] and [13] above but, failing that, the Court rates should be applied
to both. During oral argument there was some debate about whether the
adoption of either or both of those approaches would involve an
application to reopen or was a fresh matter that arose out of the
Court's findings as to the manner of calculating Mr Symond's loss. It
follows from the above that both submissions involve an application to
reopen the published reasons for judgment in respect of a matter that
Gadens had the opportunity to address at the trial but did not.
29The
parties were in disagreement as to the appropriate principles governing
an application to reopen in circumstances where reasons had been
published but no orders giving effect to those reasons had been made,
much less entered. Mr Symond contended that such an application was
governed by the principles stated in Autodesk Inc v Dyason (No 2)
[1993] HCA 6; 176 CLR 300 which only contemplate a reopening in
circumstances where a party has, through no fault of their own, not been
heard (at 309 per Brennnan J and 317 per Dawson J) or the Court has
"proceeded according to some misapprehension of the facts or relevant
law and ... this misapprehension cannot be attributed solely to the
neglect or default of the party seeking the rehearing" (at 303 per Mason
CJ). Autodesk precludes a matter being reopened in respect of an issue that was raised at the hearing and decided (Autodesk
at 309 per Brennan J). If that principle were applicable in the
circumstances of this matter then it would follow that Gadens'
application would have to be refused.
30In Wentworth v Wentworth [1999] NSWSC 638 at [13] to [18] Santow J referred to the principles in Autodesk and discussed their application and modification to the reopening or varying of a judgment at first instance. In New Cap Reinsurance Corporation Ltd v AE Grant & Ors, Lloyd's Syndicate No 991
[2009] NSWSC 950 Barrett J applied Santow J's analysis to these
circumstances, namely where reasons have been delivered but substantive
orders have not yet been made (at [1] to [2]). His Honour concluded (at
[20]) that an application to reopen in such circumstances should be
allowed "where it is obvious ... that the decision has miscarried and
that the miscarriage may be rectified and the situation retrieved by
attention to the matter by that judge rather than by an appeal court".
His Honour's subsequent citation of the passage from the judgment of Rix
LJ in Compagnie Noga D'Importation et D'Exportation SA v Abacha
[2001] 3 All ER 513 makes it clear that this only extends to obvious
errors and does not involve the judge hearing the application to be
treated to "an exposition such as would be presented to a court of
appeal".
31In Autodesk
the application to reopen the appeal was made after orders dismissing
the appeal had been pronounced but before they had been perfected by the
taking out of formal orders (at 302). As stated, in this case no
substantive orders have yet been made. Gadens submitted that this was a
relevant point of distinction between this application and Autodesk.
They contended that the Court had a discretion to reopen the principal
judgment which was at large, although presumably they would accept that
it was governed by s 56 of the Civil Procedure Act.
It submits that an application to reopen in these circumstances is in
substance no different to an application to reopen after a hearing has
concluded and judgment has been reserved, and is therefore governed by
the dictates of the "interests of justice" (Fightvision Pty Ltd v Onisforou; Tszyu v Fightvision Pty Ltd [1999] NSWCA 323; 47 NSWLR 473 at [154], and Grljusich v Andrews [2003] WASCA 206 at [109], applying Urban Transit Authority of New South Wales v Nweiser (1992) 28 NSWLR 471).
32I
doubt that Gadens' position is correct. It seems to me that the
publication of reasons for a judgment is a matter that engages the
principles of finality discussed in Autodesk
which do not apply to the same extent, if at all, before such time. On
this basis I could consider the matter raised by Gadens to determine
whether it raises an "obvious error" as referred to by Barrett J in New Cap.
Nevertheless I will address the substance of Gadens' contentions on
this issue against the contingency that a broader approach to reopening
the principal judgment on this issue is appropriate as it contends.
33As
noted, the essence of Gadens' complaint is that a consistent rate
should be adopted in assessing the value of "benefits and detriments".
It submitted that there was no logical justification for applying
different rates. Gadens submitted that the proper approach was one that
involved the use of a "running net balance" which included the costs
and expenses incurred by Mr Symond in the events that transpired and
recorded a credit for the extra tax expense that was not incurred in the
events that happened (but that would have been incurred under Scenario
2). It submitted that either Holdings' earnings rate or the Court rates
should be applied to that running balance.
34In
her further report Ms Jones pointed out that there were differences
between the Holdings rate of earnings on its own funds and the statutory
Court rates, with the former being lower than the latter. In commenting
on Mr Potter's approach (which reflects the principal judgment) she
stated:
"30
Mr Potter's methodology implicitly assumes that as a consequence of the
advice [Holdings]/Mr Symond was provided, [Holdings/Mr Symond] has
suffered a cash outflow from say when the professional costs were paid
to 8 August 2013.
31
This is not correct, as based on the Court's determination, as a
consequence of the advice provided, [Mr Symond] enjoyed a Permanent
Benefit of the Restructure. This benefit occurred
during the time when the professional costs were paid. This benefit is
significantly greater than the cash outflow suffered from the payment of
professional fees." (emphasis added)
35As
per Gadens' submissions, Ms Jones suggested that interest should be
calculated "on the cumulative net position" of Mr Symond to which a
consistent rate should be applied, being either the Court rates or
Holdings' earnings rate. As an illustration, the first five entries in
her running balance were as follows:
| All amounts |
Transaction
|
Subtotal
|
From
|
To
|
Days
|
Rate
|
Interest
|
| AT Lawyers P/L (Solicitors) |
22,572
|
22,572
|
21-May-07
|
21-May-07
|
1
|
0.0281%
|
6
|
| Price Waterhouse Coopers |
192,500
|
215,072
|
22-May-07
|
27-Jun-07
|
37
|
0.0281%
|
2,235
|
| Price Waterhouse Coopers |
134,189
|
349,261
|
28-Jun-07
|
28-Jun-07
|
1
|
0.0281%
|
98
|
| AT Lawyers & PWC |
215,731
|
564,992
|
29-Jun-07
|
30-Jun-07
|
2
|
0.0281%
|
317
|
| Hypothetical Tax Payment |
(3,133,269)
|
(2,568,277)
|
01-Jul-07
|
20-Jul-07
|
20
|
0.0281%
|
(14,425)
|
(emphasis added)
36In
oral argument Mr Donaldson SC accepted that the application of
differential rates of interest or earnings to different components or
integers of a loss assessment was not objectionable per se, but depended
on the circumstances. In this case the running balance approach
suggested by Gadens involves a misconception about the two integers that
are sought to be combined, namely the extra tax and expenses paid by Mr
Symond represented by the first four items on this table and what is
said to be the Benefit of the Restructure. The fifth item in the above
table does not represent the benefit of the Gadens Restructure and it is
not correct to state, as Ms Jones did, that the benefit occurred during
the period when the payments were made.
37The
analysis of the Benefit of Restructure in the principal judgment
involved a quantification of the (offsetting) value to Mr Symond of the
adoption of the Gadens Restructure. I determined that that value should
be measured by calculating the lower tax cost paid on the distribution
of those net dividends distributed by Holdings in the period up to 30
June 2011 under the Gadens Restructure, compared with what would have
been paid had the same amount of dividends been distributed by Holdings
under Scenario 2. Thus at [373] of the principal judgment I noted that
"[w]hat is ultimately being measured is the cost to the shareholder [ie
Mr Symond] of that distribution". This approach was arrived at after an
evaluative assessment of a number of matters, including the time over
which the comparison should be undertaken (principal judgment at
[371]ff) and an assessment of the pattern of distributions under
Scenario 2 in the period FY07 to FY11 (principal judgment at [375]). It
also adopted Mr Potter's method of quantifying the timing differences
in such payments between the Gadens Restructure and Scenario 2. This was
so because, in the events that transpired, Holdings did not declare
dividends for FY05 or FY06 and those funds remained within Holdings for
longer than they did under Scenario 2.
38Thus
the error in the approach suggested by Gadens and Ms Jones is to treat
the Benefit of the Restructure as simply involving the net effect of a
series of payments made (or not made) by Mr Symond from time to time
which can be included on a ledger with other payments that he did make.
It was not of that character. Instead, as I have said, its measurement
involved a composite assessment of the offsetting "value" represented by
the adoption of the Gadens Restructure, as compared with Scenario 2, to
the circumstances prevailing at Holdings. It had a number of integers
and one of those integers cannot simply be plucked out of the assessment
and inserted into the quite different analysis required for payments
that were in fact made by Mr Symond from his own funds (even if those
funds were sourced from the net proceeds of a dividend distribution from
Holdings).
39One
matter that was raised during the hearing, including by me, was whether
it was appropriate to apply Court rates to the payments made by Mr
Symond to the Commissioner for Taxation and penalties (as well as
professional costs) in circumstances where they were in fact funded by
the net proceeds of a dividend distribution which under Scenario 2 would
not have been required. If it had not been required then, so the
argument went, the funds distributed would have stayed within Holdings
and accrued earnings at that company's rate.
40Having
considered this point I do not accept it. In comparing the Gadens
Restructure with Scenario 2, the Holdings earnings rate should be
applied to the monies otherwise payable to meet the tax referable to the
receipt by Mr Symond's of dividends because those funds are either paid
directly to the Commissioner or retained by Holdings (and in neither
case received personally by Mr Symond). However the payment to the
Commissioner (and the professionals) in 2007 to 2008 was made out of the
net proceeds of a dividend distribution and discharged liabilities
unrelated to that distribution. Like the other net proceeds of dividend
distributions, they were monies receivable and received into Mr Symond's
hands. It is appropriate to apply Court rates to compensate him for
his loss of their use.
41This
conclusion is illustrated by a proposition that was put to Mr Potter
during his cross examination, namely that he had "treated tax that would
have been paid under [Scenario 2] as being funded by [Holdings] and ...
treated tax that was paid by Mr Symond, at least insofar as it related
to penalties in the actual world as being funded by him". Mr Potter
disagreed and he was right to do so. Under both
the Gadens Restructure and Scenario 2 tax that was payable in respect
of the distribution of dividends by Holdings was treated as though it
was funded by Holdings, as it was. This tax was only payable as a
result, or as a consequence, of the distribution of the dividends. It
was either payable to the Commissioner (or the professionals) or to be
retained by Holdings. Thus, in the scenario where it was not paid, it
is appropriate that it accrue earnings at the rate that Holdings earned
on its funds.
42However
the tax (and fees) paid by Mr Symond in 2007 and 2008 represented a
completely different set of liabilities to that incurred as a
consequence of a dividend distribution. The tax and penalties paid by
Mr Symond to the Commissioner (and the fees) were payable as a
consequence of the Gadens Restructure but they were not payable in
respect of or as a consequence of any dividend distribution by Holdings.
Instead, they were a consequence of the non-tax compliant method of
funding the construction of Mr Symond's house that the Gadens
Restructure gave effect to.
43Further,
the net proceeds of the dividend distributions are, for present
purposes, very different to the tax payable by Mr Symonds on dividend
distributions. When distributed they were monies that Mr Symond
received personally. As was noted by Mr Potter in his evidence, under
both the Gadens Restructure and Scenario 2, $67 million in net dividends
was distributed. At this point of the analysis the only relevant
difference between them is that under the Gadens Restructure Mr Symond
lost the opportunity to enjoy the use of the funds paid to the
Commissioner (and professionals) when it was otherwise payable to him.
It follows that his loss of use of those funds should be compensated for
by applying Court rates. In contrast, the tax payments considered in
assessing the Benefit of the Restructure were amounts to be paid either
to the Commissioner or were otherwise retained by Holdings but were
never to be received by Mr Symond. It follows that the calculation of
the Benefit of the Restructure should apply Holdings' rate of earnings.
44Finally,
I note that Gadens submitted that "the benefits associated with
following [Gadens advice], that is, the avoidance of tax payments that
would have been paid at a higher rate on larger dividends than in fact
occurred (being the amounts of tax payable had [Scenario 2 been
adopted]), pre-dated the detriment associated with following that
Advice, in whole or in part" and that "[t]o accrue interest on that
detriment without adjustment for the pre-existing benefit amounts to
accruing interest on a detriment that has not been sustained". Although
it is not clear this submission also appears to be contending that, in
calculating the Benefit of the Restructure, nothing is accrued on the
amount of tax payable under Scenario 2 in respect of the dividend
declared for FY05 ($3,133,269.00) and FY06 ($7,079,710.00) prior to the
payment of the settlement to the Commissioner in September 2008. If that
is what is contended then it is incorrect. The spreadsheets attached to
Mr Potter's further report reveal that he commenced accruing earnings
on those amounts by reference to the Holdings earnings rate prior to Mr
Symond's payment to the Commissioner. Otherwise, if this is really only a
restatement of the complaint about the application of different rates,
it has already been addressed.
45Accordingly,
I reject Gadens' application to modify the process of calculating Mr
Symond's damages specified in the principal judgment at [374] to [375]
and [422] to [426] to the extent that it allowed interest on the amount
paid to the Commissioner in tax and penalties (and associated
professional costs) at Court rates and included in the Benefit of the
Restructure a component to be calculated by using an earnings rate equal
to that achieved by Holdings on its own funds.
46I
note that in reaching this conclusion it has not been necessary to
address Mr Symond's further contention that had Gadens disputed these
matters at the trial then he "would have led different lay and expert
evidence".
Issue 2: Termination date for calculating the benefit of the restructure
47In
calculating the Benefit of the Restructure the period specified in the
principal judgment for conducting the exercise of comparing the cost of
distributing the same amount of net dividends concluded on 30 June 2011.
The parties were in dispute as to what should occur with the figure
that was determined as representing the Benefit of the Restructure from
that time up to the date of judgment. Mr Potter continued to accrue the
running value of the benefit as at 30 June 2011 at Holdings' rate of
earnings up to the time that Mr Symond paid tax on the dividends he
received in respect of the dividends payable for the year ended 30 June
2011, namely 21 July 2012. However he ceased to accrue any interest or
earnings from that time. Consistent with her approach to the first issue
Ms Jones accrued interest at Court rates until the anticipated date for
judgment.
48This
was not a matter that was agitated at the hearing. As noted Mr Potter
contended that the Benefit of the Restructure was temporary and would
smooth out over time leaving only a difference in the timing of
payments. He adopted mid-2013 as the point by which the smoothing out
would be complete. On his approach it was not necessary to consider the
present question because there was no permanent benefit and there was no
"gap" period beyond the end of his calculations. It is only the
departure of the principal judgment from this aspect which raises this
as an issue. Thus, even if some aspect of the principal judgment covers
this point (such as [425]), then the principles extracted from Autodesk at [29] above enable Gadens to raise it.
49Mr
Symond points to those parts of the principal judgment which identify
30 June 2011 as the end point for the calculation of the Benefit of the
Restructure (at [372]). However, consistent with [37] to [38] this date
was just another component of the calculation of the offsetting value of
a benefit. It was simply the end of the last financial year during
which dividends, which form part of the comparison of the cost of
exacting the same amount of net dividends under Scenario 2 when compared
with the Gadens Restructure, are taken to be declared. It had no
greater significance and did not signify some point at which the value
of the offsetting benefit is fixed forever into the future. As
explained above, what was yielded from the calculation described at
[374] to [375] was a value for the benefit. Mr Potter's analysis shows
that that value crystallises at 21 July 2012. From that point the value
of the benefit should accrue interest at Court rates. Paragraph 425 of
the principal judgment should operate as though the words "(with
interest accruing on that amount at statutory rates) from 21 July 2012"
were added to the end.
Issue 3: Third party beneficiaries
50One
matter that was overlooked in formulating the methodology set out in
the principal judgment at [422] to [426] and [374] to [375] was that Mr
Symond did not ultimately receive the entirety of the dividends that
were distributed by Holdings. In the principal judgment at [14] it was
noted that, prior to corporatisation, Mr Symond only controlled the
units in the AHLUT "through various entities, which relevantly included
the Dawnraptor Trust and the Symond Investment Trust". It appears that
he also utilised those entities to own his shares in Holdings. In the
years ended 30 June 2007 to 30 June 2011 the overwhelming bulk of the
dividends distributed by Holdings flowed to Mr Symond via those two
trusts, but it does appear that their trustees distributed a relatively
small percentage of dividends to other entities (the "other
beneficiaries").
51This
circumstance affects the performance of the calculation contemplated by
the principal judgment at [374] to [375]. Mr Potter and Ms Jones
adopted two different approaches. Mr Potter calculated the reduced tax
payable from the reduced dividend flow by assuming that those trusts
distributed the same dollar amount to those so-called "other
beneficiaries". However, Ms Jones calculated that amount by assuming
that the ratio of dividends that were distributed by those trusts to the
other beneficiaries to those that were distributed to Mr Symond was the
same under Scenario 2 as in the events that transpired. Ms Jones'
approach meant that a greater dollar amount is to be taken to be
distributed to Mr Symond under Scenario 2 than that calculated by Mr
Potter. Her approach means that the tax paid by Mr Symond under
Scenario 2 is higher than that calculated by Mr Potter, and thus the
value of the Benefit of the Restructure is also higher.
52During
the trial no attention was paid to either the identity of the other
beneficiaries or the circumstances in which they were paid because, on
the respective (absolutist) positions of the parties, it was apparently
irrelevant. It seems that the need to address this matter only became
relevant as a consequence of the methodology outlined in the principal
judgment. For that reason, after hearing submissions on 17 October
2013, I allowed the parties a brief opportunity to file further
submissions and evidence as they considered appropriate concerning these
payments.
53Mr
Symond provided submissions which attached certain redacted copies of
the minutes of the trustees recording resolutions distributing the
proceeds of the receipt of dividends from Holdings in the years 2007 to
2011. I have admitted those redacted minutes (and had them marked as
exhibit 7). Those minutes record that over the period FY07 to FY11
certain amounts were distributed to three family members in fixed
amounts. Mr Symond is recorded as receiving the balance of the
distribution (which totalled between 94.61% and 98.18%). There were
twelve distributions made to the three other family members, four made
to "family member 1", five made to "family member 2" and three to
"family member 3". The nine distributions to family members 1 and 2
were in round figures as was one of the distributions to family member
3. The remaining two distributions to family member 3 were made in FY10
and FY11 respectively. The distributions in round figures represented
just under 56% of the total amount distributed to the third parties in
the period FY07 to FY11.
54Mr
Symond submits that this material suggests that the distributions to
"other beneficiaries" represented "some fixed requirement, need or want
of the relevant third party beneficiary" with the balance being
distributed to Mr Symond. Thus he contends that in considering the
hypothetical dividend flow under scenario 2, the dollar amount (and not
percentages) of the proceeds of dividends distributed to those other
beneficiaries would have been the same.
55Gadens
contended that just because fixed amounts were distributed does not
mean that they do not represent a predetermined percentage of trust
income. They pointed to the two distributions to family member 3 which
were not in round figures and suggested that the amounts indicated that
they represented a proportion of the amount distributed. Gadens also
submitted that the reason for these distributions was within Mr Symond's
knowledge yet he only produced a minimal amount of evidence on this
issue.
56Although
there is some force in Gadens' submissions, I accept the submissions
made on behalf of Mr Symond. As stated, the bulk of the number of
distributions and the majority of the dollar amount were fixed round
numbers that were most unlikely to have been arrived at via the
application of some percentage approach. Bearing in mind that neither
party contended for some blending of the two approaches I consider that
Mr Potter's assumption that the dollar amounts would have remained best
accords with the evidence as to what was in fact distributed to the
"other beneficiaries".
Issue 4: Timing of tax payments
57To
calculate the Benefit of the Restructure in the manner provided for in
the principal judgment at [374] to [375], it was necessary to determine
the dates on which Mr Symond would have paid tax on the (hypothetical)
dividend stream envisaged by Scenario 2 (as modified by the principal
judgment at [375]). The question of the timing of tax payable by Mr
Symond under Scenario 2 appeared to have been addressed in paragraph 13
of the joint report of Mr Potter and Ms Jones noted above at [16].
58The
various spreadsheets attached to the joint report referred to in that
extract included one which was entitled "Restructure Benefit - SC2 -
Potter" and another entitled "Restructure Benefit - SC2 - Jones". Both
spreadsheets addressed, inter alia, the amount and timing of the tax
payable by Mr Symond under Scenario 2. In particular, for the tax
payable by Mr Symond in respect of dividends declared by Holdings under
Scenario 2 for FY05 (and paid during FY06) and dividends declared by
Holdings for the financial year FY06 (and paid during FY07), both of
these spreadsheets adopted the common payment dates of 11 September 2007
and 2 July 2008 respectively. Both spreadsheets included a note
stating that "dates tax is payable are based on the actual dates that
tax was paid by Mr Symond", which in turn refers to another note stating
that "Mr Symond is assumed to pay tax on the dates at which Mr Symond
received a Notice of Assessment from the ATO".
59In
his further report Mr Potter adopted the same approach to the timing of
these (hypothetical) payments as was used in the joint report in
calculating the value of the Benefit of the Restructure in accordance
with [374] and [375] of the principal judgment. That is, he assumed
that the two sets of dividends I have referred to were paid on 11
September 2007 and 2 July 2008 respectively. For certain dividends that
were declared in FY07 and received in that year, he also adopted the
date of 2 July 2008.
60However, Ms Jones adopted a different approach which she explained as follows:
"Paragraph
374 [of the principal judgment] indicates to me that the recalculation
to be performed makes allowance for a change in the timing of tax
payments in respect [of] the dividends the Court concludes would have
been paid under the Hypothetical Scenario [ie Scenario 2] in respect of
FY05 and FY06. For this reason under the Hypothetical Scenario I have
assumed:
a)
In respect of the 2006 financial year, Mr Symond would have been
required to lodge his 2006 tax return on 15 May 2007, and pay his tax on
that dividend 6 weeks later on 1 July 2007; and
b)
Following lodgement of his 2006 tax return, Mr Symond would have been
placed on a quarterly tax instalment payment system requiring him to pay
quarterly tax instalments on 21 July 2007, 21 October 2007, 21 January
2008 and 21 April 2008. I have adopted Mr Potter's assumption that the
quarterly tax instalments are calculated as tax payable in respect [of]
the tax year divided by 4 instalments."
61In
her oral evidence Ms Jones explained that she understood that [374] of
the principal judgment contemplated that there could be a
reconsideration of the timing of the tax payments identified in the
joint report. (She also accepted that the dates in sub-paragraph (a)
above were incorrect in that quarterly tax instalments are usually
payable on the 28th day of July, October, January and April, not the
21st.)
62Mr
Symond resisted any suggestion that this matter be revisited. Further,
assuming that this matter was able to be reconsidered, Mr Potter
identified what he contended were two difficulties with Ms Jones'
approach. He noted that Ms Jones used a figure for the PAYG instalments
payable during FY08 based on distributions received by Mr Symond during
FY07. However, ordinarily the earliest date one would expect Mr Symond
to lodge his return declaring receipt of dividends for FY07 would be
April 2008, so that any PAYG instalments that reflected an assumption of
an ongoing receipt of that level of dividends would not be paid in FY08
but in the following financial year.
63Mr
Potter was also critical of an assumption or assertion of Ms Jones that
the first PAYG payment in respect of dividend income would be payable
in July 2007. He contended that the earliest date that a quarterly
instalment would be required to be paid by Mr Symond under Scenario 2
would be 28 October 2007 rather than 21 (or 28) July 2007.
64The
starting point is that [374] of the principal judgment did not
contemplate that there would a revisitation of the question of when tax
would be payable by Mr Symond under Scenario 2. The joint report had
appeared to present an agreed position on that issue. It follows that I
will only treat the agitation by Gadens of this issue as, in effect, an
application to reopen which is governed by the same principles noted
above at [29] to [32].
65The
oral evidence of Mr Potter confirms that the question of exactly when
such payments might have been required to be made involves an inquiry
into the interplay between the requirements of the relevant tax
legislation, the practices of tax agents and the speed of the
administrative responses of the Australian Taxation Office. Thus, in
explaining why he maintained the view that the first date for payment of
any amount in respect of dividends received from Holdings would have
been September 2007, Mr Potter explained:
"September
2007 is the actual date Mr Symond lodged his tax return and paid the
tax. In the actual world I couldn't see why it would be any different
in the hypothetical world. I agree with Ms Jones, it's a relatively
complex area for tax agents, because my understanding of when tax
returns had to be lodged, tax agents had their own programmes for
lodgement and it's not altogether clear, to me, anyway, precisely when
parties must lodge their returns when they're part of a tax agent's
lodgement programme. When I looked at the September '07 lodgement there
didn't seem to be any penalties for late lodgement of the return or
anything so I took the view it would be better to rely on what actually
occurred as a starting point."
66Further, in explaining why he would otherwise have expected the PAYG payments to commence in October 2007, Mr Potter stated:
"It's
also my experience and my understanding that quarterly PAYG payments
for a particular year commence - the first quarter is normally October.
There wouldn't normally be an instalment in July. I'm not aware of why
there wouldn't be, it is certainly my personal experience. Given the
return was lodged in September, I'm not so sure the tax office would be
so quick to make the first quarterly payment in October. I don't know
how quick they would react to the return."
67These
answers reveal that for the Court to now allow a departure from what
was stated in the joint report would involve a far more detailed factual
enquiry than that which was attempted before me. It would appear to at
least involve an inquiry into (i) how or why it was that Mr Symond
lodged his return when he did; (ii) why he ended up with an assessment
requiring payment in September 2007; (iii) what were the applicable
requirements for the lodgement of tax returns for a person in Mr
Symond's position; (iv) when the tax office would likely have placed Mr
Symond on a PAYG schedule; and (v) what amounts they would in fact
have required him to pay.
68Further,
at best the most likely alteration favourable to Gadens that would
result from such an inquiry would appear to be one which involved Mr
Symond commencing paying some quarterly payments from October 2007, and
then only quarterly amounts reflecting the level of investment income
received by him in FY06. Thus, I seriously doubt whether the level of
enquiry that would be necessitated if I was to allow a departure from
the approach in the joint report would be likely to yield any
substantially different result. In circumstances where the parties were
content to adopt the approach that they did in the joint report, I do
not consider that the "interests of justice" warrant any departure from
that approach at this point, assuming that to be the correct test, which
I doubt (see [32]).
69Accordingly,
I reject this aspect of Gadens' application. In assessing the value of
the Benefit of the Restructure the tax payments on dividends under
Scenario 2 should be taken to be made on the dates adopted by Mr Potter
in his further report.
Issue 5: Additional professional fees
70In
[317] of the principal judgment I indicated that, had Scenario 2 been
pursued, I expected that Mr Symond would have sought further
professional advice concerning his exposure to fringe benefits tax. I
assessed the cost of that advice at "$25,000.00 having regard to the
level of fees charged during the ATO audit".
71Furthermore,
in the principal judgment at [330] I found that an allowance of
$75,000.00 should be made in respect of the possibility of incurring
professional fees because there might have been further scrutiny of Mr
Symond's taxation affairs beyond the 2005 high earners review had
Scenario 2 been adopted.
72The
second step noted in the calculation of the quantum in the principal
judgment at [424] required the deduction of these two amounts from the
amount calculated in accordance with the principal judgment at [423].
Gadens queried whether that was an oversight and submitted that the two
amounts totalling $100,000.00 should be offset against the fees that
were incurred in 2006 and 2007 and interest accrued on that net figure.
However it was not an oversight. Those figures represented an assessment
of the present day costs of those fees and the value of that
contingency. This was reflected in the principal judgment at [424].
Conclusion
73After
judgment was reserved on this application I requested that the parties
provide figures for the quantum of the judgment as at 31 October 2012 in
accordance with Mr Potter's figures subject to variations to allow for
the outcome of my consideration on the second and third issues noted
above.
74Consistent
with the high degree of professionalism displayed by both sets of legal
representatives throughout this matter, they were both able to provide
revised calculations within a short period. The material provided on
behalf of Mr Symond yields a figure of $4,979,791.00 as the amount of
the judgment to be entered in his favour by utilising the basis set out
in the principal judgment (at [422] to [426] and [452] to [455])
supplemented by the resolution of the outstanding issues as set out in
this judgment. Gadens stated that they agreed with Mr Symond's
"mathematics" (or arithmetic) but they disagreed with his methodology
because it involved the application of Holdings' rate of return up to 21
July 2012 and Court rates thereafter. It follows from the analysis set
out above in relation to issues (1) and (2) that I consider that is the
appropriate methodology. Otherwise I will round Mr Symond's figure to
the nearest $100.00.
75The
remaining issues of quantum having now been resolved, the Court is in a
position to enter a judgment in favour of Mr Symond for a specified
amount. Gadens' notice of motion will be dismissed. After publication
of this judgment and orders I will hear the parties briefly on the
question of costs.
76Accordingly the Court orders that:
(1)The notice of motion filed 2 August 2013 is dismissed.
(2)Judgment for the Plaintiff against the First Defendant in the sum of $4,979,800.00.
**********
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