Evans, R.W. v Commissioner of Taxation

[1988] FCA 672

JUDGME~r I V ~ 6k, . B ,

..... ......_*

C A T C H W O R D S ..

INCdME TAX - Costs of Proceedings	- Each party in part successful
- Test case on Trust Stripping	- Assessment of hearing time

involved on test case and other issues - Taxpayer awarded portion

of his costs.

INCOME TAX ASSESSMENT ACT 1936	ss.51, 260
B E T W E E N :

WILLIAM	RONALD	W A N S	Appellant
- and -

THE COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA

Respondent

Fisher J.

Adelaide

llEQlSTRY

8 November 1988

AUSTRALIA
CRlNCl?N

IN THE FEDERAL COURT OF AUSTRALIA 1

)

NEW SOUTH WALES DISTRICT REGISTRY	)	NO. G2301-2304 Of 1987
1

DIVISION

GENERAL

1

IN THE MATTER Of the INCOME TAX

ASSESSMENT ACT 1936

AND

IN THE MATTER of Appeals

thereunder by RONALD	WILLIAM
-	EVANS

income tax based upon income

aaainst assessments to

during the years ended 30 June

1980. 1981, 983 and 1984

respectively.
B E T W E E N :

RONALD WILLIAM EVANS

Appellant

- and -

THE COMMISSIONER OF TAXATION

FOR THE	COMMONWEALTH OF
AUSTRALIA

Respondent

MINUTES OF ORDER

JUDGE MAKING ORDER	FISHER J.
WHERE MADE	ADELAIDE

DATE OF ORDER	8 NOVEMBER 1988
THE COURT ORDERS	THAT:

1. The Commissioner pay to the appellant two fifths of his

costs of these appeals the same to	be taxed if not
agreed.

2. This date be fixed pursuant to Order Rule 52

15(l)(a)(lll) of the Rules of Court for the fillng and

service of any notice of appeal.

Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

1

NEW SOUTH WALES DISTRICT REGISTRY	)	NO. G2301-2304 Of 1987
)
GENERAL DIVISION	1

IN THE MATTER of the INCOME TAX

ASSESSMENT ACT 1936

AND

IN THE MATTER Of Appeals

thereunder by RONALD WILLIAM

-	% against assessments to
Income tax based upon income
during the years ended 30 June
1980, 1981, 983 and 1984
respectively. B E T W E E N : RONALD WILLIAM EVANS

Appellant

- and -

THE	COMMISSIONER OF TAXATION
FOR THE	COMMONWEALTH OF
AUSTRALIA

Respondent

REASONS FOR JUDGMENT

CORAM: Fisher J.

8 November 1988

When I delivered judgment in this matter on 21 September

1988 I said:

"On the question of costs I am of opinion that because

each party has been partially successful the

appropriate order is that there should	be no order as
to costs.	However I am prepared to accept submissions
in writing on the question of costs within 14 days	from
delivery of these reasons.

.

L .

I extend the time for any appeals so	that that	time
commences to run when	I enter final judgment upon	the
question of costs."
Each party took up the opportunity	to make	submissions

in writing on the question of costs. For reasons set out in his

submission the Commissioner contended that the appellant should be ordered to pay 85% of the Commissioner's costs. The appellant for his part sought an order that the Commissioner pay at least

two-thirds of his costs. It is necessary to consider the

arguments presented by the parties in support	of the two widely
divergent submissions.

The Commissioner laid emphasis on the fact that in his

view this was a "test case" on "trust stripping' and that he

succeeded in establishing that s.260 of the Act applied. It

follows, he said, that the unsuccessful appellant should pay his

costs on that issue. He further submitted that this issue

absorbed approximately 90% of the time involved in the hearing.

Without disputing that the Commissioner may have seen this as a

"test case" it is in my opinion wholly wrong to allow him 90% of

the costs of the hearing on this ground. There was no issue in

the case which was less strenuously resisted	by	the appellant
and on which	the appellant's case absorbed less	of the hearing
time.	The appellant's counsel virtually conceded the	prima facie

applicability of the section to the relevant arrangements, and

merely set up three defences based on allegedly exceptional

circumstances. The Commissioner for	his part in supporting	his
assessment of the appellant in	respect of the net income of	his

family trust relied on a number of additional contentions, all of

which absorbed greater time and all of which were decided against

him. If the matter had been approached by the Commissioner only

as a test case on the applicability of s.260, there would have

been prospects of concluding it within the allotted period of

three days. Furthermore the Commissioner did not succeed on the applicability of 6.260 to the interest claimed to have been paid

to American Overseas Corporation.

On the matter of the deductibility of interest payments the Commissioner acknowledged that	he only succeeded in	respect
of the loan from China Acceptance	Limited.	He said that only 10%

of the time involved in the hearing related to the deductibility of interest, which was a subsidiary issue. Furthermore about one

half of this time was	spent on the loan from China Acceptance
Limited. It	is however my firm view that a great deal more than

10% of the hearing time was spent on the issue of interest

deductions, and a great deal less than one half	of that time was
spent on the China Acceptance Limited	loan.

I therefore dismiss the submissions of the Commissioner

that he be paid 05%, or in fact any, of his costs by the

appellant.

The appellant's contention was that he be paid at least

two-thirds of his costs. He supported this ubmission by

reference in the first instance to the respective successes of

the parties calculated in money terms. The overall amount in

issue he said was in money terms $136,140 being the interest

deductions claimed and the net income of the trust and the appellant succeeded in respect of $99,219. I take note of this submission but do not place a great deal of reliance thereon.

The appellant then pointed to the fact that the case was

unduly prolonged by reason of the Commissioner's insistence that

"strict proof" was required of the entitlement to interest

deductions. He stated correctly that I found this to be an inappropriate requirement. However whilst there is substance in this submission it was the inability of the appellant and his

advisors to produce direct evidence either oral or by	accounting
records, on most aspects, that to a considerable extent	prolonged

the hearing on this issue.	I agree with the submissions of	the
appellant that	in	respect of the trust income the Commissioner

was not successful on any aspect other than the applicability of

6.260. He failed on the sham argument, the fiscal nullity

contention, and the contentions, which were innumerable, based upon trust law. Even on the 6.260 issue the decision in favour

of the Commissioner was based upon relatively few undisputed

facts, and there was little necessity to rely upon the complex

transactions set out in the "Round Robin" diagram.

Having said that in favour of the appellant's submission

on costs I again draw attention to the unsatisfactory

presentation of this case, to which I referred at some length in

my earlier reasons and for which the appellant must accept much responsibility. I am however of the opinion that an order for

costs in favour of the appellant must be made. I take into

account the time spent by the Court on the various issues, the

extent to which the appellant was successful and the other

aspects of the hearing set out above. In my opinion the

Commissioner must pay to the appellant two-fifths of h i s costs

the same to be taxed if not agreed and I so order.	As previously
intimated the time for appeals runs from the date	of this order.

I certify that this and

the + preceding pages are a true copy of the Reasons for Judgment of Mr Justice

Fisher. - In

Associate I C 1 k