Case: Barnes &amp; Co Ltd v Sharpe [1910] HCA 26 ; (1910) 11 CLR 462
Outcome: referred to
It was also held in South Hetton that an action will lie without proof of special damage and that the quantum of damages is at large: at 139, per Lord Esher MR; at 143, per Lopes LJ; at 148, per Kay LJ. In Australia, South Hetton has been accepted as accurately stating the law: Barnes &amp; Co Ltd v Sharpe [1910] HCA 26 ; (1910) 11 CLR 462 , at 473-474, per Griffith CJ; at 478-479, per O'Connor J; at 485, per Higgins J. 69 The following propositions seem to me to emerge from the authorities I have discussed. 1. The Gourley principle applies in Australia to damages awards in personal injury cases. That is, a damages award, insofar as it compensates the plaintiff in respect of loss of income, must be assessed after taking into account the plaintiff's liability to pay tax on the income he or she would have derived but for the compensable injury: Cullen v Trapell. 2. Subject to limited exceptions, the Gourley principle applies where the lost income would have been taxable if received by the plaintiff and the damages award is not assessable income in the hands of the plaintiff: Groves v United Pacific Transport , per Gibbs J; Atlas Tiles , per Gibbs J. An example of an exceptional case (in the context of a wrongful dismissal claim) is Atlas Tiles, where a small portion of the damages award was taxable . 3. Subject to any relevant statute, an award of damages in a personal injuries claim, even if calculated by reference to lost income, is not income according to ordinary concepts for the purposes of s 6-5 of the ITAA : Cullen v Trapell (endorsing the judgment of Gibbs J in Atlas Tiles ); Groves v United Pacific Transport. The reason is that the award of damages is, in point of principle, for impairment of the plaintiff's earning capacity and not for loss of income as such: Graham v Baker. 4. This proposition applies even if the award is limited to damages in respect of lost income (in the sense explained in the previous paragraph) during a period prior to trial: Graham v Baker ; Groves v United Public Transport. 5. It follows that there is a clear distinction between the character of a payment for the purposes of s 6-5 of the ITAA and the manner of its calculation or quantification: Tinkler v FCT. Indeed, the latter might provide a quite misleading guide to the former: Tinkler v FCT. 6. The Gourley principle applies in Australia to an award of damages for wrongful dismissal, notwithstanding that the calculation of damages is based on the precise amount of income lost by the plaintiff in consequence of the wrongful termination of his or her employment: Atlas Tiles, per Gibbs J, approved in Cullen v Trapell. A damages award in such a case is not income according to ordinary concepts. 7. A damages award for defamation of a trading corporation is intended to compensate for the injury sustained by the corporation to its reputation in the way of business: Gacic v John Fairfax ; ABC v Comalco. The assessment of damages is ' at large ', but may be undertaken in a particular case by reference to the loss of income attributable to the defamatory publication: Barnes &amp; Co v Sharpe . 8. Where damages for defamation are awarded to a trading corporation and are assessed by reference to the plaintiff's loss of income, the Gourley principle applies to the assessment: Rubber Improvement ; Atlas Tiles, per Gibbs J, approved in Cullen v Trappell. 9. As has been noted, subject to limited exceptions, Gourley applies only where the income that would have been derived by the plaintiff would have been taxable and the damages award is not subject to tax. It follows that a damages award in favour of a trading corporation for injury to its reputation in the way of business, assessed in the manner described, is not income according to ordinary concepts when received by the plaintiff corporation. The reason why this is so is that damages for defamation of a trading corporation are awarded for loss of business reputation, however they may be calculated: see authorities cited in para 7 above. Thus even if the award is assessed exclusively by reference to loss of income, the award does not constitute income in the hands of the plaintiff corporation. In this respect the award is conceptually similar to damages awarded for loss of earning capacity.