Landrow Properties Pty Ltd v Commissioner of State Revenue

[2009] VSC 108

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
VICTORIAN TAXATION APPEALS LIST

No. 5353 of 2008

LANDROW PROPERTIES PTY LTD	First Plaintiff
HEENI PTY LTD	Second Plaintiff
V
COMMISSIONER OF STATE REVENUE	Defendant

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JUDGE:	Mandie J
WHERE HELD:	Melbourne
DATE OF HEARING:	20 February 2009
DATE OF JUDGMENT:	20 February 2009
CASE MAY BE CITED AS:	Landrow Properties Pty Ltd & anor v Commissioner of State Revenue
MEDIUM NEUTRAL CITATION:	[2009] VSC 108

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COSTS – whether successful plaintiffs were entitled to indemnity costs of issue abandoned by defendant – whether successful plaintiffs were entitled to indemnity costs incurred after refusal of their offer of compromise – whether offer of compromise was “genuine” within the meaning of O.26.08(8) of the Rules of the Supreme Court.
TAXATION – relevance of ss.12(2), 63(1) and 64(1) of the Taxation and Administration Act 1997 (Vic) to the Commissioner’s power to compromise proceedings.
INTEREST – factors relevant to rate of interest to be adopted under the Supreme Court Act 1986 (Vic).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr T Grace	Schetzer Brott & Appel
For the Defendant	Mr P Sest	State Revenue Office

HIS HONOUR:

1. In the judgment in this matter it was decided that the plaintiffs were entitled to repayment of the sum claimed by them, restitution of the sum of $110,609.  I note from the submissions that are now made that that amount has in fact been repaid on 27 January of this year.

1. I will note in “Other Matters” that the amount has been repaid and simply make a declaration that the plaintiffs were entitled to repayment of that sum.

1. The two questions which now arise relate to interest and costs.  I will deal with one question as to costs first.  The plaintiffs claim indemnity costs in relation to the issue of a defence taken by the Commissioner based on the contention that an assessment had been made and that accordingly the particular procedure adopted by the plaintiffs was inappropriate, relying on s.19 of the Taxation and Administration Act 1997 (Vic)(“the Administration Act”).

1. The essence of it is that there is one set of procedures where there is an assessment and there is another set of procedures where it is simply the recovery of money where there has not been an assessment.  The Commissioner initially took the approach that there had been an assessment but then took a pragmatic and I think very reasonable decision to withdraw that defence and simply to deal with the question of liability to repay the money on the real issue that arose in the case, namely the proper interpretation of the relevant provisions of the Duties Act 2000 (Vic). I am not inclined to penalise the defendant for taking that stance and then withdrawing it at the stage that it did and the costs involved certainly could not be considered to be very great. I do not think it is a matter where indemnity costs should be visited upon the Commissioner to penalise him for taking that defence in the circumstances where it was quite reasonably withdrawn and did not encumber the actual trial of the proceeding. I do not think the Court should have to go into the question of whether there was any substance or not in the defence as originally taken although it seems to me on a tentative basis that there were at least some arguments that could legitimately be raised by the Commissioner. There is a difference between an assessment and a notice of an assessment but I do not need to decide that and I simply decline to grant indemnity costs on the issue.

1. If I could then go back to the question of interest.  It is common ground that the plaintiffs are entitled to interest and entitled to interest under the Supreme Court Act 1986 (Vic)(“the Supreme Court Act”). The only question really is the rate of interest, and that leads to slightly different results depending on the calculation.

1. If the Court were to adopt the rate of interest that would have been applicable under the Administration Act, the Commissioner’s submission states that the rate of interest would lead to a sum of about $15,000. The maximum rate under the Supreme Court Act results in a sum of about $17,000. It seems to me that the Court is entitled to take into account what interest rate would be applicable to the Commissioner under the Administration Act in determining what rate of interest should be applied and I also consider that I should take into account that there was a considerable delay in this matter between the payment of the money and this proceeding brought to get it back. For whatever reason, and through no fault of the Commissioner, that has resulted in a rather lengthy period over which the interest is to be calculated. So for that main reason and for the other reasons mentioned earlier, I think that the interest that should be awarded should be in round figures $15,000. So there will be an order that the defendant pay the plaintiff interest in the sum of $15,000 pursuant to the Supreme Court Act.

1. It is not in dispute that the plaintiffs are entitled to their costs but they seek an order for indemnity costs having regard to the making of an offer of compromise.  The plaintiffs served an offer of compromise on 17 October 2008 or thereabouts and offered to settle their claim by accepting the sum of $100,000.  That offer was some $10,000 odd less than the amount claimed and also involved foregoing interest to that date, had it been accepted. 

1. The offer was properly made under Rule 26.08 and under Rule 26.08(2) “where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled…to an order against the defendant for the plaintiff’s costs in respect of the claim up to and including the day the offer was served taxed on a party and party basis and for the plaintiff’s costs thereafter taxed on an indemnity basis.”  Rule 26.08(8) is also relevant which provides that “where the plaintiff obtains judgment for the recovery of a debt or damages, and the amount of the debt or the damages was not in dispute, but only the question of liability, paragraph (2) shall not apply unless the Court is satisfied that the plaintiff’s offer was of a genuine compromise.”

1. Although the defendant's case was not hopeless I think the plaintiff's case was a strong one and I think that the amount of $100,000 represented, looking just at the amount, a genuine compromise.  I accept that the Court needs to take into account the totality of the circumstances and not just the amount of the offer.  It has been said that the Court has to determine whether in the totality of the circumstances the offer by the plaintiff represented any element of compromise or whether it was merely yet another formally stated demand for payment designed simply to trigger the entitlement to payment of costs on an indemnity basis.  That was stated by Rogers CJ of the Commercial Division in Tickell v Trifleska Pty Ltd.[1]

   [1](1990) 25 NSWLR 353.

1. In Hobartville Stud Pty Ltd v Union Insurance Co Ltd,[2] Giles J said (at 368):

"Compromise connotes that a party gives something away.  A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar but it does not in any real sense give anything away and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so." 

[2](1991) 25 NSWLR 358.

1. Looking at the totality of circumstances here, I think that the plaintiffs did in a real sense give something away.  They gave away a substantial amount, $10,000.  It is a substantial amount, looking at the overall claim of $110,000 together with the interest thereon.  The claim was of sufficient strength - I think that that represented a real – a genuine - compromise.  I am satisfied in all the circumstances that the offer was a genuine compromise.  That means that unless the Court otherwise orders, the plaintiff is entitled to costs on an indemnity basis after the day the offer was served.  It seemed to me that it was suggested in the written submissions of the Commissioner that he had no power in the circumstance of this case to enter such a compromise but Mr Sest has disavowed that contention which makes it difficult for me to understand exactly what is being put.

1. It seems to me that the Commissioner has power to compromise a proceeding even if the only question in issue is liability and that liability depends on the proper interpretation of the relevant statutory provisions.  Simply because the Commissioner considers that either the plaintiff is liable or it is not and is of the believe that the plaintiff is liable, that does not mean that the Commissioner cannot compromise the proceeding, looking at the risks involved and determining that it would be appropriate to save the time and costs of the litigation by settling the case and that is the whole point of Order 26 and if the plaintiff does better than the offer, the Rules provide for the appropriate  result.

1. Although it was not contended that the Commissioner did not have power to compromise, I think it is worth stating that in my opinion under s.63(1) of the Administration Act, whereby the Commissioner has the general administration of the taxation laws and is empowered to do all things that are necessary or convenient to give effect to those laws, the Commissioner under that provision has the power to conduct litigation and defend litigation.  That is reinforced by s.64(1) which is a formal provision that legal proceedings might be taken by or against the Commissioner in the name of the Commissioner of State Revenue, but it is clear enough that the general administration of the taxation laws includes the conduct of litigation, including the conduct of litigation pursuant to the Supreme Court Rules which contain these provisions as to offers of compromise, so I cannot see that the position of the Commissioner here was such that he was unable, either as a matter of power or as a matter of administrative discretion, to reach a compromise on the terms put forward by the plaintiff.

1. Given that I am satisfied that the plaintiff's offer was of a genuine compromise, I see no reason to otherwise order under Rule 26.08(2) and I think that an order for indemnity costs, from the day after the offer was served, should be made.

1. I should add that my conclusion about the Commissioner's position is I think reinforced by the provisions of s.12(2) of the Administration Act, which provides that the Commissioner, with the agreement of the taxpayer, may assess liability in an amount specified in or determined in accordance with the agreement, and that must necessarily empower the Commissioner by reaching an agreement with a taxpayer, not only to assess, but also to reassess liability, and that, I think, reinforces the conclusion that there was no inhibition upon the Commissioner accepting the plaintiff's offer of compromise.

1. So there will be an order as I have indicated, the only qualification being that the plaintiffs should bear their own costs associated with the adjournment on 17 July 2008.  So I will make orders in accordance with those reasons.

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