Inground Constructions Pty Ltd v Federal Commissioner of Taxation

[1994] FCA 35

IN THE FEDERAL COURT OF AUSTRALIA	)
VICTORIA DISTRICT REGISTRY	) NO. VG77 of 1992
GENERAL DIVISION	1

BETWEEN:	INGROUND CONSTRUCTIONS PTY.
LTD.

Applicant

AND :  COMMISSIONER OF TAXATION and THE COMMONWEALTH OF AUSTRALIA

Respondents

CORAM:	Jenkinson J.
PLACE :	>lelbourne
m:	11 February, 1994

MINUTES OF ORDER

THE COURT ORDERS THAT:

1.        The respondents' costs of the proceeding incurred between 1 December 1992 and the date on which the notice of motion filed 10 March 1993 was served on the respondents' solicitor be paid by the applicant.

The respondents' costs of the said motion be paid by the applicant.

NOTE
--	Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.

Save as aforesaid each party abide its costs of the proceeding.

IN THE FEDERAL COURT OF AUSTRALIA	)
VICTORIA DISTRICT REGISTRY	) No. VG77 of 1992
GENERAL DIVISION	1

BETWEEN:	INGROUND CONSTRUCTIONS PTY.
LTD.

Applicant

m: COMMISSIONER OF TAXATION

and THE COMMONWEALTH OF

AUSTRALIA

Respondents

LRAM:	Jenkinson J.
PLACE :	Melbourne
m:	11 February, 1994

REASONS FOR JUDGMENT

Motion for leave to discontinue a proceeding.

The circumstances are unusual. On 12 February 1992
the High Court declared "that the provisions of the S a l e s Tax

Assessment Act (No. 1) 1930 (Cth) which, when incorporated and

read as one with the S a l e s Tax Act (No. 1) 1930 (Cth) , would

have the effect of imposing a tax upon a sale value of so much of a swimming pool as is constructed in situ are of no effect." That was because, the tax being imposed when the construction of a swimming pool in situ has been completed, there was included in the law having the effect of imposing the tax both laws imposing duties of excise and a law imposing

' a tax on land, contrary to s.55 of the Constitution. On 11

March 1992 this proceeding was instituted, by which the applicant claimed payment of sums totalling $495,578.66, which it alleged that it had paid to the respondent Commissioner as sales tax payable under the provisions declared by the High Court to be of no ' effect, under compulsion by the first respondent and under a mistake. On September 1992 the

Swimmino Pools T a x Re fund Act 1992 commenced. That Act

provides that the Commonwealth is not liable to make any payment by way of refund of an amount paid to the respondent Commissioner in purported compliance with the requirements of the law declared by the High Court to be of no effect, except in accordance with certain provisions of that Act. Those provisions impose on the Commonwealth a liability to make certain refund payments to a person such as the applicant claims to be. In November 1992 the respondents amended their defence to plead that provisions of the Swimminu Pools Tax

Re fund Act 1992 operated to deny the applicant the relief

claimed in the proceeding. On 10 February 1993 the Full High Court reserved its decision on a question reserved for its consideration, in a proceeding to which the applicant is not a party, as to the constitutional validity of the Swimminu Pools Tax Re fund Act 1992, as I was informed by counsel. On 30

August 1993 I heard and determined in the applicant's favour its motion for leave to discontinue this proceeding, but reserved my decision as to what, if any, order should be made concerning the costs of the proceeding and of the motion. Notice of the motion was first given in August 1993.

Order 22 of this court's Rules makes provision for discontinuance. When the pleadings have closed a party claiming relief may discontinue only with the consent of the other parties to the proceeding or the leave of the court. The pleadings had closed when the applicant sought leave. When before the pleadings have closed a party discontinues without leave of the court and without the consent of the other parties, as he may unless he is suing in a representative capacity, Rule 3 of Order 22 provides that he shall be liable to pay the costs of the other parties occasioned by the proceeding. When discontinuance is by leave of the court the costs are in the discretion of the court. Rule 7 of Order 22 provides:

"A discontinuance under this Order as to any

cause of action shall not, subject to the terms of any leave to discontinue, be a defence to a proceeding for the same, or substantially the same, cause of action."

Mr. Maxwell of counsel for the respondents submitted

that the commencement of the proceeding had been premature and

that discontinuance was inappropriate at a time when the

constitutional validity of the Swimmina Pools Tax Refund Act

1992 was in question before the High Court, and all the more

inappropriate after the High Court had decided, on 7 October

1992, that "the rule precluding recovery of money paid under a

mistake of law should be held not to form part of the law in Australia, thereby eliminating what had been perceived before

' that decision to be a difficulty for the applicants. (See

!

i David Securities Ptv. Ltd. v. Commonwealth Bank of Australia (1992) 175 C.L.R. 353 at 369-376.) Demand had been made by the applicant's solicitors of the Deputy Commissioner of Taxation for payment to the applicant of the sum alleged to have been paid as sales tax in respect of swimming pools constructed by the applicant, by letter dated 20 February 1992. By letter dated 10 March 1992 the Deputy Commissioner replied "that an announcement concerning this office's position regarding monies paid as sales tax in respect of in- ground swimming pools will be made on Thursday 12th March 1992". This proceeding was instituted on 11 March 1992, after the solicitors had received the letter and had been informed, by an officer of the Australian Taxation Office of whom they had inquired, that nothing of substance could be added to the information conveyed by the letter. On 31 March 1992 a public statement was issued by the Australian Taxation Office, in these terms:

"Refunds of Sales Tax on in-ground swimming

pools

The Commissioner of Taxation, Mr. Trevor

Boucher, today announced that the Tax Office is	seeking legal advice to clarify issues about
refunds of sales tax which follow a High Court decision on in-ground swimming pools.
The High Court decided on 12 February 1992 that the legislation which sought to impose sales tax on the construction in-situ (on-site) of in-ground swimming pools is invalid.
'The decision has raised a range of complex legal issues surrounding the questions of how and under what conditions money which has been paid as sales tax by professional and private pool builders can be refunded,' Mr. Boucher said. 'These issues must be clarified before any decision on the payment of funds can be made.
'Under the legislation it appears that, where refunds are available, they may be limited to people who have lodged their refund application wlthin three years of paying amounts of sales tax. We do not want anyone to be disadvantaged by the time it may take to resolve the legal issues surrounding the refund question. Accordingly, we strongly urge anyone who feels they may be entitled to a refund to lodge an application for a refund on the form available from their local Tax Office as soon as possible.'
Mr. Boucher stressed that it is the person who actually paid the tax to the Tax Office who must lodge the application. This would be either the professional pool builder or a private owner-builder who paid an amount to the Tax Office for sales tax on a in-ground swimming pool.
Taxpayers who are unsure whether they should lodge an application for refund should contact the Enquiries area of their local Tax Office for advice.
'A decision on the payment of refunds will be made as soon as the legal issues are resolved,'
.	Boucher concluded."

Mr. Maxwell submitted that in those circumstances the

?

i	applicant had failed to take the reasonable course of
l
:	abstaining from legal recovery action until the terms on which
refunds would be made were known. Once the Swimminq Pools Tax Refund Act l 9 9 2 was enacted the applicant should have either
discontinued the proceeding or invited the respondents to consent to the suspension of interlocutory steps towards trial
until the constitutional validity of the Swimminq Pools Tax
Refund Act 1992 was determined, Mr. Maxwell submitted. Now that it was known to be likely that the High Court would

' determine the constitutional validity of that Act,

,

discontinuance was an unreasonable course to take and the applicant should be refused leave to take it, according to Mr. Maxwell's submission.

Apart from a statement by the applicant's solicitor, in his affidavit sworn in support of the motion for leave to discontinue the proceeding, that "I believe that the Swimminq Pools Tax Refund Act 1992 has rendered these proceedings nugatory", there was no explanation as to why the applicant desired to discontinue the proceeding at this time. But the respondents did not assert that they would suffer in consequence of discontinuance any prejudice which could not be compensated by an order for costs. It was for the applicant, not the court, to determine whether the applicant's interests will be better served by maintaining or by discontinuing the proceeding. For those reasons I gave the applicant the leave sought at the conclusion of the hearing, reserving for further consideration the question of costs. Mr. Maxwell did not seek an order imposing terms or conditions on the grant of leave.

Mr. Davey Q.C. for the applicant submitted that the enactment of. the Swimminu Pools Tax Refund Act 1992 should be regarded, for the purpose of exercising the court's discretion as to costs, as analogous to conduct of a defendant while an action is pending which brings about the result which the plaintiff was seeking to have brought about by the court's order in the action. He cited two cases of that kind, where

' the defendant was ordered to pay the plaintiff's costs of the discontinued action. In one such a case the plaintiff lessor was seeking to enforce compliance with a term of the lease that the leased premises should be used only for a particular purpose and the defendant lessee, after action brought, granted a sub-lease to a sub-lessee who would use the premises for that purpose. The plaintiff was given leave to discontinue and the defendant was ordered to pay the costs of

the action : G a r w o l i n N o m i n e e s P t v . L t d . v. S t a t e w i d e B u i l d i n q

S o c i e t y [l9841 V.R. 469. (See also R. v. G o l d C o a s t C i t y

C o u n c i l ; Ex D a r t e R a v s u n P t v . L t d . [l9711 Qd.L.R. 28). But

the enactment of that Act was by the Parliament of the Commonwealth, not by the polity which is the second-named respondent. The assumption that the Executive Government controls both the Parliament and the polity, which the submission invites the court to make, does not in my opinion justify imputation of legal responsibility for the passing of the Act to the second-named respondent in a legal proceeding to which that respondent is a party, even for the purpose of exercising a discretion as to costs. I consider that the passing of the Act should be regarded as an event which

own costs of. the proceeding until each had an opportunity of	justifies the court in leaving all three parties to bear their
considering the effect of the enactment on the litigation which the applicant had begun. I do not think that the indications given the applicant by the Deputy Commissioner, and later the Australian Taxation Office, of an intention on the part of the Executive Government to consider the question

!	' of refund of money paid under the invalidated laws, were sufficiently clear to justify penalising the applicant in costs for failing to delay prosecution of the proceeding before the Act was passed.
I

Once the applicant had had time to consider the effect of the Swimminq Pools Tax Refund Act 1992 - at the latest in November 1992 when the defence was amended to include pleas based on that Act - the reasonable course for the applicant then to have taken was either to seek leave to discontinue the proceeding or, if the applicant thought that the Act might be declared unconstitutional, to propose to the respondents that no further interlocutory steps towards trial be taken in the proceeding. It was not suggested that such a proposal had been made. The court file does not disclose whether any such interlocutory steps were in fact taken after November 1992, and there was no evidence on the question. The amendment of the defence was filed on 13 November 1992. There will be an order that the respondents' costs of the proceeding incurred between 1 December 1992 and the date on which the notice of motion filed 10 August 1993 was served on the

respondents' solicitor be paid by the applicant.

That notice of motion specified as one of the orders sought an order that the respondents pay the applicant's costs of the proceeding. The respondents have been substantially successful on the motion, the substance of which was the

dispute about costs. There will be an order that the

respondents' costs of the said motion be paid by the

applicant.

I certify that this and the 8
preceding pages are a true copy of

the Reasons for Judgment of the

Associate

Dated: 11 February, 1994

Counsel for the Applicant	Mr. F.C. Davey Q.C.
Solicitors for the Applicant	Mulcahy Mendelson &
Round
Counsel for the Respondent	Mr. C.M. Maxwell
Solicitors for the Respondent	Australian Government
Solicitor

Date of Hearing 30 August, 1993