The Supreme Court of Victoria has overturned a Magistrates’ decision and reinforced existing law in relation to the application of GST in the settlement of insurance claims.
The plaintiff suffered a loss after one of its garbage trucks was involved in a collision. The plaintiff issued proceedings through a recovery agent against the defendant seeking the cost of repairing the garbage truck. The defendant’s insurer admitted liability for the collision.
Even though the plaintiff was a company registered for GST purposes and was entitled to claim an input tax credit (ITC) for the 10% GST component of the repairs to the truck, it sought the full GST-inclusive sum from the defendant. The plaintiff argued that it did not propose to claim an ITC and was entitled to recover the full cost of repairing the truck. The insurer argued that a company registered for GST purposes is only entitled to recover a GST-exclusive sum in a claim for damages against a tortfeasor.
The Magistrate found in favour of the plaintiff and imposed a complex set of orders whereby:
- the insurer was to pay the plaintiff the full GST-inclusive cost of repairs;
- the plaintiff was to then claim an ITC from the ATO within the next quarter; and
- after claiming the ITC, the plaintiff was then to pay the GST component of the cost of repairs back to the insurer.
The insurer appealed the decision to the Victorian Supreme Court. In doing so, it argued that the Magistrate’s order contravened the approach taken by other Australian superior courts, did not encourage finality of litigation and misapplied the rules relating to mitigation of loss.
The insurer’s appeal was upheld by Justice Croft. His Honour held that the Magistrate’s orders were unnecessarily complex. His Honour held that the set of orders made by the Magistrate should be applied only in complex taxation cases where there is uncertainty as to the amount of tax to be levied on an award of damages. In relation to mitigation of loss, Justice Croft held that the Magistrate erred by ordering the plaintiff to claim an ITC. His Honour held that the Court is not justified in ordering a plaintiff to mitigate its loss but should rather make an appropriate discount to any award of damages to reflect a plaintiff’s failure to mitigate. His Honour determined that the appropriate measure of loss in such a case is a GST-exclusive figure.
Millington v Waste Wise Environmental Pty Ltd  VSC 167
This case confirmed the general principle applied in insurance settlements, which is that an insurer is only liable to pay a GST-exclusive sum to a claimant company that is registered for GST. This is the first time that this issue has been considered in a Victorian appellate court and is now binding law in Victoria.