Case: Sydney Refractive Surgery Centre Pty Ltd v Commissioner of Taxation [2007] FCA 1544
Outcome: cited
Although SRSC is the applicant, the proceedings in this Court were initially conducted on its behalf by solicitors acting on instructions from two of the three defendants in the defamation proceedings, HSV Channel Seven Pty Ltd (' HSV ') and Amalgamated Television Services Pty Ltd ' ATS ') (together ' Seven '): see Sydney Refractive Surgery Centre Pty Ltd v Commissioner of Taxation [2007] FCA 1544 , at [10]. Seven took on this role, notwithstanding that neither HSV nor ATS is a party to the current proceedings, apparently because the orders made by Studdert J in the defamation proceedings contemplate that SRSC can apply for an increase in the damages award if it is found liable to pay capital gains tax in respect of the Sum. 8 Since the Commissioner no longer presses the contention that the Sum represents a taxable capital gain and since the orders made by Studdert J in the Supreme Court make no provision for an increase in the damages award if the Sum is determined to be income according to ordinary concepts, SRSC now appears to be the real party in interest as well as the nominal applicant in these proceedings. It is of course possible that some indemnity arrangement is in place between Seven and SRSC but, if so, I have not been informed of any such arrangement. 9 Before considering the issue debated before me, one aspect of the present case should be noted. Studdert J specifically addressed the question of whether the Sum would be regarded as ' income according to ordinary concepts ', within the meaning of s 6 -5 of the ITAA. His Honour decided that it should not be so regarded and that, in order to avoid over-compensating SRSC, its damages were to be reduced by 36 per cent to take account of the tax that it would have had to pay on the profits lost in consequence of the defamatory broadcasts. Apparently SRSC did not ask Studdert J to make an order allowing SRSC to apply for an increase in the damages award if the Commissioner subsequently regarded the damages received by SRSC as ordinary income and part of its assessable income for that reason. 11 There is no dispute as to the primary facts. A chronology of the relevant events is set out below. &#8226; SRSC was incorporated on 28 May 1996. At all material times, it carried on a business which included performing laser eye surgery. &#8226; Three specialist ophthalmologists, Dr Lawless, Dr Rogers and Dr Sutton conducted their practices through SRSC, using procedures known as photorefractive keratectomy (' PRK ') and, later, laser assisted in situ keratomileusis (' Lasik '). &#8226; In April 1998, Dr Beaumont, an experienced ophthalmologist who had conducted certain forms of laser surgery for many years, gave an interview to a representative of Seven. In the course of the interview, Dr Beaumont made a number of serious imputations against SRSC and Dr Lawless. These included allegations of unethical behaviour by misleading patients about the risks of eye surgery, and deceitful behaviour by securing patient consents to procedures through trickery. This was the first publication of defamatory material concerning SRSC. &#8226; On 4 May 1998, HSV telecast in Victoria a program called ' Today Tonight '. This program discussed laser eye surgery and reported on practices allegedly adopted by SRSC and Dr Lawless in advertising their services, recruiting patients for laser eye surgery and conveying information to prospective patients. This program was later found by a jury to have contained defamatory imputations in relation both to SRSC and Dr Lawless. This was the second defamatory publication. &#8226; On 5 May 1998, STS telecast a program in New South Wales with substantially similar content to the HSV telecast. This was the third defamatory publication. &#8226; On 21 August 1998, SRSC, Dr Lawless, Dr Rogers and Dr Sutton commenced proceedings in the Supreme Court of New South Wales. Each plaintiff sought damages in respect of the defamatory imputations conveyed by the three publications. &#8226; At a trial conducted in February 2001 pursuant to s 7A of the Defamation Act 1974 (NSW), a jury found that the matters complained of ' carried many grave imputations ' against both SRSC and Dr Lawless. The jury rejected the claims made by Dr Rogers and Dr Sutton. &#8226; The hearing on liability and damages took place over 30 hearing days before Studdert J, during the period 15 September 2003 to 1 December 2003. His Honour delivered judgment on 18 March 2004: Sydney Refractive Eye Surgery Centre Pty Ltd v Beaumont [2004] NSWSC 164. He rejected defences of truth and fair comment and assessed the total damages payable to SRSC at $844,624.00. Studdert J recognised that SRSC might be liable to capital gains tax on the award of damages, but thought that justice could be done by reserving leave to SRSC: 'to apply for additional damages referable to capital gains tax considerations should [SRSC] be found liable to pay such tax'. &#8226; The Sum was paid to SRSC during the 2004 year. It is not clear from the material available to me whether amounts comprising the Sum were paid by each defendant in the proportions specified in the orders made by Studdert J, or whether the defendants bore responsibility among themselves for payment of the damages award in some other way. Nothing, however, turns on this.