ACN 068 691 092 Pty Ltd v Commissioner of State Taxation (No 2) - [2018] SASC 26

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ACN 068 691 092 PTY LTD v COMMISSIONER OF STATE TAXATION (NO 2)
[2018] SASC 26
Judgment of The Honourable Justice Blue
9 March 2018
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - CONDUCT OF PARTIES - MISCONDUCT, ETC - GENERALLY
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - CONDUCT OF PARTIES - MISCONDUCT, ETC - IN PROCEEDINGS - CONDUCT OF CASE
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - OTHER CASES - FAILURE IN PORTION OF A CASE
Application for costs following dismissal of appeal against land tax assessments.
The Court dismissed an appeal by the appellant against assessments by the respondent of land tax in respect of six commercial properties following transfers which created or enlarged minority interests; ACN 068 691 092 Pty Ltd v Commissioner of State Taxation [2017] SASC 195.
The appellant contends that the respondent should only recover a percentage of his costs of action because the appellant was successful on some issues and the respondent engaged in misconduct which unreasonably increased costs.
Held:
1. The appellant did not relevantly succeed on a discrete issue and there is no reason to make a partial costs order by reference to mixed success on the issues (at [17]).
2. The respondent did not engage in misconduct in or relating to the litigation and there is no reason to make a partial costs order as a result (at [22]).
3. The question whether the respondent took steps that unnecessarily and unreasonably increased costs should be determined by the taxing officer rather than the trial Judge (at [26]).
4. Order that appellant pay the respondent’s costs of the appeal (at [28]).
Supreme Court Civil Rules 2006 (SA) Rule 264(2), referred to.
A, DC v Prince Alfred College Inc (No 2) [2016] SASCFC 27; ACN 068 691 092 Pty Ltd v Commissioner of State Taxation [2017] SASC 195, considered.

ACN 068 691 092 PTY LTD v COMMISSIONER OF STATE TAXATION (NO 2)
[2018] SASC 26
BLUE J:

This is an application for costs following dismissal of an appeal by a taxpayer against assessments assessing land tax on an aggregated basis.
On 22 December 2017 I dismissed the appeal by ACN 068 691 092 Pty Ltd (ACN) against assessments by the respondent Commissioner of State Taxation of land tax for the 2011 to 2013 years in respect of six commercial properties in which ACN held an 89 or 90 per cent majority interest following transfers made in June 2010 by ACN to members of and/or entities owned and controlled by the Scragg family which created or enlarged minority interests.[1] I found that a substantial purpose of the June 2010 transfers was to reduce the amount of land tax payable in respect of land owned by ACN.
[1] ACN 068 691 092 Pty Ltd v Commissioner of State Taxation [2017] SASC 195.
The Commissioner seeks an order that ACN pay his costs of the appeal on the basis that costs should follow the event. ACN resists that order on overlapping grounds that, although unsuccessful overall, it was successful on some issues and the Commissioner engaged in misconduct in connection with the action which unnecessarily and unreasonably increased the costs incurred in the action. ACN contends that the Commissioner should only recover 40 per cent of his costs of action (a partial costs order).
The Court has an unfettered discretion in relation to costs, subject only to the requirement to act judicially. Nevertheless, a practical starting point is that ordinarily costs follow the event. This is subject to there being good reason to make some other order. There are established categories in which such good reason may exist but the categories are not closed because the Court retains an unfettered discretion. The categories may overlap in any particular case and, in deciding whether and to what extent the Court should depart from the practical starting point, it is usually necessary to exercise a holistic judgment.
Mixed success
When a party succeeds overall but fails on one or more issue in the case, this may be a reason to make a costs order reflecting the mixed success by the parties on the underlying issues notwithstanding the overall result.
In A, DC v Prince Alfred College Inc (No 2),[2] the Full Court said:
The principles governing the exercise of the costs discretion are well established. The Court exercises a judicial discretion with respect to costs in which the general rule is that costs ordinarily follow the event unless there are special circumstances justifying another order. In more recent times, courts more readily modify the general rule recognising that the interests of justice sometimes require a reduction in the costs that would otherwise have been awarded to a successful party when that party has failed on particular disputed questions of fact or law…
…
The modification of the ordinary rule to reflect the way in which particular issues in the litigation are determined is a response to those ‘cases in which issues are raised which unduly extend the time and expense of litigation’.
…
The authorities to which we have referred make it clear that the rule does not only apply to a ‘precise issue in the technical pleading sense’ but extends to any substantial disputed question of fact or law. There is of course a limit to the dissection of an action which is practicably possible.
On the other hand, the court should not be overly parsimonious in the award of costs to a plaintiff who has won a judgment against a wrongdoer who has denied liability on all of the grounds of the plaintiff’s claim.
There can be no precision in the balancing of the tension between the ordinary rule and its qualification. Much will depend on the extent to which the costs of the litigation of the separate issues can easily be separated out and on the reasonableness of the forensic decision of the successful party to pursue, not only the claims on which he or she succeeded, but also those claims on which he or she failed.[3]
[2] [2016] SASCFC 27.
[3] At [5]-[13] per Kourakis CJ, Gray and Peek JJ. (Citations omitted)
Without limiting the factors relevant to the exercise of the discretion, it is more likely to be exercised to make a costs order reflecting mixed success on issues:
·the more separate and distinct the issue on which the successful party failed (a separateness assessment);
·the greater the proportion of costs of the issue on which the successful party failed out of total costs (a relativity assessment);
·the greater the costs of the issue on which the successful party failed (an absolute assessment);
·the less the merit of the successful party’s case on the unsuccessful issue (a merit assessment).[4]
[4] See Australian Trade Commission v Disktravel [2000] FCA 62 at [3] per French, Kiefel and Mansfield JJ; Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [3]-[6] per Finkelstein and Gordon JJ.
ACN contends that it was successful on the factual issue of the degree of historical (pre-June 2010) gifting and financial support by Mr and Mrs Scragg to their children. ACN refers to the findings I made in relation to that gifting at [111] to [117] of my principal reasons for judgment.
There was only one ultimate issue at trial, namely whether one of the purposes of the June 2010 transfers was to reduce the amount of land tax payable in respect of land owned by ACN (land tax reduction). It did not matter whether there were other concurrent purposes (such as transferring Scragg family assets to their children) as long as land tax reduction was one of the purposes.
One of the sub-issues at trial was whether, as ACN contended, the predominant purpose of the transfers was to implement an overall strategy by Mr and Mrs Scragg to transfer Scragg family assets to their children (succession planning).
In turn, one of the sub-sub-issues at trial was the degree of historical gifting by Mr and Mrs Scragg to their children in relation to a number of properties. ACN contended at trial that the existence of historical gifting of those properties tended to support a conclusion that the June 2010 transfers were made in the implementation of the same strategy.
The Commissioner did not deny that historically Mr and Mrs Scragg had made gifts of interests in some properties to their children. In cross-examination, the Commissioner questioned and in some cases challenged the extent of those gifts and in one case challenged the existence of a gift. In closing address, the Commissioner to a lesser extent challenged the extent of those gifts.
The definition of this issue (and the alleged misconduct of the Commissioner addressed in the next section) needs to be considered in the light of the manner in which the evidence developed at trial. ACN tendered documents relating to the gifts in question as part of its tender book but those documents were in some cases incomplete and/or in incorrect order and questions arose concerning the nature and extent of the gifts. In addition, the documents unsurprisingly did not tell the full story and oral evidence was necessary. Mr Scragg gave evidence in chief (partly in writing and partly orally) but his evidence in chief left various questions that needed to be clarified. Mr Scragg was cross-examined by the Commissioner at some length about the historical transactions.
The findings that I ultimately made at [112] to [116] of my principal reasons for judgment about the individual properties are a result of the process referred to in the previous paragraph and cannot be characterised as reflecting success by ACN on the historical issues. The issues in relation to the individual properties were not black and white because in most cases the Commissioner accepted that there was a gift but in some cases contested the extent of the gift. Considered collectively, it cannot be said that either ACN or the Commissioner “succeeded” on this “issue”. My findings were more favourable to ACN than the Commissioner’s submissions but less favourable to ACN than ACN’s case.
The finding I made at [117] of my principal reasons as to the purpose of the Scraggs cannot be characterised as success for ACN on this purpose issue. Again, my finding represented an intermediate point between ACN’s case and the Commissioner’s submissions. Again, the issue was not black and white. It cannot be said that ACN “succeeded” on this issue. If anything, along a continuum my findings might be considered to be closer to the Commissioner’s submissions than ACN’s case.
In any event, insofar as there were issues at trial about the individual properties, those issues cannot be regarded as separate or distinct from the larger issue as to ACN’s purpose in making the transfers (on which the Commissioner succeeded). That larger issue needed to be decided in the matrix of all of the relevant facts. Gifts of individual properties formed merely one part of that matrix.
This is not a case in which it can be concluded that there was mixed success on underlying issues or good reason to make a partial costs order notwithstanding the overall result.
Misconduct by successful party
When a party succeeds overall but the costs of the litigation have been increased (or in an extreme case caused) by misconduct of a party in, relating to or leading up to the litigation, this may be a reason to make a costs order reducing the costs recovered by the successful party (or in an extreme case depriving that party of costs or ordering that party to pay the unsuccessful party’s costs).[5] For this purpose, the conduct of the party that is the subject matter of the action does not itself qualify as misconduct.[6]
[5] Bostock v Ramsey Urban District Council [1900] 2 QB 616 at 622 per A L Smith LJ; Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 at 874 per Devlin J.
[6] F King & Co v Gillard & Co [1905] 2 Ch 7 at 11 per Vaughan Williams LJ.
If it is concluded that a party has been guilty of relevant misconduct, it is necessary to analyse whether, and if so to what extent, the relevant misconduct caused or contributed to the existence, continuation or extent of the litigation and hence the incurring of costs in the litigation.[7]
[7] Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103, (2014) 120 SASR 532 at [57]-[59] per Blue J (with whom Sulan and Parker JJ agreed).
ACN contends that the Commissioner failed to act as a model litigant by putting in issue facts asserted by ACN that were known by the Commissioner to be true. ACN points to the Commissioner’s cross-examination of Mr Scragg and closing address about the transfer in 2013 by Mrs Scragg to Carla of the Largs property (which Mrs Scragg had inherited from her mother). ACN contends that it was clear that this was a gift. I did not make findings about whether or to what extent this was a gift because it post-dated the subject transfers by almost three years. I do not regard the cross-examination of Mr Scragg or the closing address of the Commissioner about this transaction as comprising misconduct, regardless of the finding I might have made about it if it had been necessary.
ACN points to the other transfers about which I made findings at [112] to [116] of my principal reasons for judgment. As observed above, my findings represented an intermediate point between the respective cases of ACN and the Commissioner. The cross-examination of Mr Scragg and the closing address of the Commissioner about these transactions did not comprise misconduct.
There was no relevant misconduct by the Commissioner or good reason to make a partial costs order due to misconduct notwithstanding the overall result.
Unnecessary and unreasonable steps increasing costs
When a party takes (or in certain circumstances fails to take) steps which are unnecessary and unreasonable for the prosecution or defence (as the case may be) of the action and this increases the costs incurred in the action, this may be a reason to make a costs order reducing the costs recovered by the successful party (even though the conduct does not amount to misconduct).[8]
[8] Keddie v Foxall [1955] VLR 320 at 324 per Lowe, Martin and O’Bryan JJ.
Ordinarily the question whether costs have been costs reasonably incurred by the successful party in the conduct of the litigation should be determined by the taxing officer on an adjudication of party and party costs because this is the criterion under subrule 264(2) of the Supreme Court Civil Rules 2006 (SA) and the onus lies on the successful party to justify that the costs were reasonably incurred upon challenge. First a taxing officer who has access to the successful party file and information will be in a position to assess whether and to what extent costs have been reasonably incurred at the item level whereas a trial judge can only make a holistic assessment. Secondly, if the trial judge makes a partial costs order because the successful party took steps which were unnecessary and unreasonable for the prosecution or defence of the action, the taxing officer will usually be placed in a difficult if not impossible position in determining whether disallowing a particular item would involve double counting.
Accordingly, it will only be in a rare case that a court will make a partial costs order on the ground that the successful party took steps which were unnecessary and unreasonable for the prosecution or defence of the action. Such an order is more likely to be made where the costs of the unnecessary steps comprised a very substantial proportion of the costs incurred in the action, it is clear that the impugned steps were unnecessary and it is unlikely that the order would place the taxing officer in a difficult position.
ACN contends that the Commissioner took unnecessary steps in the action which increased the costs incurred. By way of example, ACN points to the inclusion by the Commissioner of documents in relation to a property at Hill Street Cumberland Park. On the one hand, my perception as the trial Judge is that there were some steps taken by the Commissioner that were unnecessary. An example is the extent of the submissions made by the Commissioner on costs relating to ACN’s failure to comply with court orders. On the other hand, it is preferable that the question whether costs were reasonably incurred determined by a taxing officer reasons given above.
Conclusion
Considered holistically, there is no reason to make a partial costs order notwithstanding the overall result.
I order that the appellant pay the respondent’s costs of the appeal to be adjudicated if not agreed.