North West Melbourne Recycling Pty Ltd v Commissioner of State Revenue (No 2)
[2017] VSC 726
•1 December 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST
S CI 2016 04260
| NORTH WEST MELBOURNE RECYCLING PTY LTD (ACN 087 766 514) | Plaintiff |
| v | |
| COMMISSIONER OF STATE REVENUE | Defendant |
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JUDGE: | CROFT J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | By written submissions (Plaintiff – 3 November 2017; Defendant – 13 November 2017) |
DATE OF JUDGMENT: | 1 December 2017 |
CASE MAY BE CITED AS: | North West Melbourne Recycling Pty Ltd v Commissioner of State Revenue (No 2) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 726 |
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COSTS – Special costs orders – Auswest Timbers Pty Ltd v Secretary, Department of Sustainability and Environment (No 2) [2010] VSC 513 - Gann v Hosny [2017] VSCA 318 – Whether action continued in circumstances where the defendant properly advised should have known that there was no chance of success – Failure of the defendant to address pivotal provision of the Taxation Administration Act 1997
COSTS – Content of overarching obligations – Relevance of Model Litigant Guidelines in informing content of overarching obligations – Breach of overarching obligations sounding in costs – Civil Procedure Act 2010 s 29
COSTS – Offer of compromise made pursuant to Order 26 of the Supreme Court (General Civil Procedure) Rules 2015 – Offer not accepted – Whether non-acceptance was unreasonable – Offer not an offer to capitulate – Failure to accept offer unreasonable – North West Melbourne Recycling Pty Ltd v Commissioner of State Revenue [2017] VSC 647 – Landrow Properties Pty Ltd v Commissioner of State Revenue [2009] VSC 108 – Comaz (Aust) Pty Ltd v Commissioner of State Revenue (2015) 101 ATR 339 – Commissioner of Taxation v Clark (No 2) (2011) 197 FCR 251
INTEREST – Supreme Court Act 1986 – Penalty Rates Interest Act 1983
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J de Wijn QC with Mr T Grace | Hope Earle |
| For the Defendant | Mr P Solomon QC with Ms K O’Gorman | Solicitor for the Commissioner of State Revenue |
HIS HONOUR:
The issue which fell for determination in this proceeding was of a kind that might well horrify the taxpayers of Victoria who fund the State of Victoria, not to mention Victorian business people who fear they might one day be a party to such litigation. By the time of trial, it was agreed between parties that an identifiable amount of tax had been overpaid. Nonetheless, the Commissioner of State Revenue came before this Court to say that this amount should not be repaid. Now that it has been determined in the Principal Proceeding that in the particular circumstances the State must give back what it ought not to have taken,[1] the Commissioner says that there is nothing about this case to disturb the rule that it ought to be liable for costs on a standard basis only. For the reasons that follow, the Taxpayer is entitled to have its costs paid on an “indemnity” basis—now referred to as a special costs order—because the Commissioner inexplicably failed to address an obviously critical provision of the Taxation Administration Act 1997 (“the TAA”).
[1]North West Melbourne Recycling Pty Ltd v Commissioner of State Revenue [2017] VSC 647 (“the Principal Proceeding”).
Section 24 of the Supreme Court Act 1986 gives the Court broad discretion to award costs, including on an indemnity basis:[2]
[2]Supreme Court Act 1986.
24. Costs to be in the discretion of Court
(1)Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.
…
This position is reflected in the Supreme Court (General Civil Procedure) Rules 2015, which relevantly provide:[3]
63.27 Application
This Part applies to costs in a proceeding which by or under any Act or these Rules or any order of the Court are to be paid to a party to the proceeding either by another party or out of a fund.
[3]Supreme Court (General Civil Procedure) Rules 2015 rr 63.27–8.
63.28 Bases of taxation
Subject to this Part, costs in a proceeding which are to be taxed shall be taxed on—
(a) the standard basis;
(b) the indemnity basis; or
(c) such other basis as the Court may direct.
The Commissioner says that the costs of the Taxpayer ought not to be assessed on an indemnity basis because the Commissioner acted reasonably at all times in his conduct of the litigation. In this vein, it is submitted:[4]
[4]Commissioner’s Submissions on Costs (13 November 2017), [6].
Cases ask whether an action was commenced or was continued in circumstances where the losing party, properly advised, should have known that they had no chance of success. It is a usual corollary of this doctrine that the Court concludes that a proceeding was commenced or continued for an ulterior motive—because rational litigants do not otherwise commence or continue hopeless proceedings.
In the present case, the Commissioner properly advised should have known that there was no chance of success. Consequently an award of “indemnity” costs is justified. I do not accept the submission that an award of costs on a special basis entails a finding that the Commissioner acted other than bona fide, but rather rely on the failure by the Commissioner to understand and address a pivotal provision of the TAA, being sub-s 19(2A). At trial, the Commissioner failed to address sub-s 19(2A) of the TAA—as I said in the principal judgment:[5]
[5]North West Melbourne Recycling Pty Ltd v Commissioner of State Revenue [2017] VSC 647, [35]–[37].
35. The Commissioner’s submissions fail to deal at all with the purpose, and effect, of s 19(2A) or s 19(2)—being provisions central to the issue for determination in this proceeding.
36. The Commissioner’s avoidance of these central provisions is telling; the Commissioner offers no explanation for the decision of the legislature to introduce s 19(2A), much less one that is supportive of the Commissioner’s case.
37. The Commissioner’s views—as advanced—fail to give any operation at all to s 19(2A) or s 19(2). …
This failure led to the Commissioner’s mistaken belief that there was an important issue of statutory construction which ought to be resolved by litigation, when in fact sub-section 19(2A) was plainly decisive of the supposed controversy.
While the reasons for which sub-s 19(2A) was critical to the determination of this proceeding should be discerned from the principal judgment, it is nonetheless convenient to set out the relevant provisions of s 19 of the TAA:
(1)If a taxpayer claims to be entitled to receive a refund of or to recover tax paid or purportedly paid under a taxation law, the taxpayer must lodge with the Commissioner within 5 years after the payment was made an application for the refund of the payment.
(2)An application for a refund cannot be made if the Commissioner has previously served a notice of assessment of the tax liability of the taxpayer in respect of the matter in respect of which the payment was made to the Commissioner.
(2A)Subsection (2) does not apply to an application for a refund of tax paid or purportedly paid under the Land Tax Act 2005 or a refund of a contribution paid or purportedly paid under Part 9B of the Planning and Environment Act 1987.
…
The Commissioner, being responsible for the administration of the TAA, ought to have been aware of the existence, and legal effect, of s 19(2A) of that Act, as well as all other provisions relevant to any taxpayer’s entitlement to a refund of land tax under Part 4 of that Act. Accordingly, the Commissioner ought to have been aware of the legal framework of Part 4 of the TAA within which a taxpayer may seek, and obtain, a refund of overpaid land tax—and the Commissioner ought to have been aware of this at the time that the plaintiff’s application for the refund was first made on 29 April 2016—being some 11 years after s 19(2A) was introduced.
The Commissioner must be taken to have been aware of s 19(2A) from 1 January 2006 as this was the date on which the Land Tax Act 2005 (“the LTA”) became subject to the TAA and the date on which s 19(2A) was introduced into the TAA. As I found in the principal judgment, this provision is unambiguous:[6] while refunds will not be able to be sought, or obtained, for any other taxes (except GAIC) where a notice of assessment has been issued, s 19(2A) expressly provides that the existence of an assessment will not preclude a taxpayer from applying for a refund in respect of land paid under the LTA. It follows, as the Taxpayer contends, that the Commissioner’s case was not arguable—a conclusion which is epitomised by the Commissioner’s failure to address s 19(2A) in any detail or make any argument as to why that sub-section is irrelevant.
[6]North West Melbourne Recycling Pty Ltd v Commissioner of State Revenue [2017] VSC 647, [43]; see also at [48], [50].
The failure by the Commissioner to grapple with s 19(2A) is aggravated by the fact that the sub-section has been in issue since the proceeding was commenced. Although the primary ground of claim in the Taxpayer’s Statement of Claim was restitution (which was later withdrawn), the statutory grounds for refund was put squarely:[7]
122.Further, or alternatively, the plaintiff is entitled to a refund of all the overpaid amounts based on the statutory cause of action for refunds of overpaid taxes under s 21(1) of the Taxation Administration Act 2005, and Part 4 of that Act generally, and more particularly, the statutory right to the refund of overpaid land tax which was paid or purportedly paid in response to a notice of assessment issued pursuant to the Land Tax Act 2005 (as to which see s 19(2A) of the Taxation Administration Act 2005).
123.In the premises, the plaintiff is entitled to restitution, alternatively a statutory refund, of $325,351.85.
In response to these allegations, the Commissioner pleaded bare denials, and in doing so, failed to use its pleading to narrow the issues in dispute.[8] The Commissioner’s bare denials are especially troubling given the certification by the Solicitor for the Commissioner of State Revenue that “on the factual and legal material available to [it] at present … each denial in the document has a proper basis”.
[7]Statement of Claim (20 October 2016), [122]–[123].
[8]Defence (25 November 2016), [122]–[123].
By its Amended Statement of Claim, the Taxpayer gave further detail to the Commissioner regarding the claim for a statutory refund, and again referred specifically to s 19(2A) of the TAA.[9] Again, the Commissioner failed to put any position on the operation of sub-s 19(2A), or any detailed position as to the applicability of Part 4 of the TAA.[10] Consequently, it is clear that at no stage did the Commissioner offer any meaningful defence to the Taxpayer’s claim under Part 4 of the TAA. Given that the Commissioner ought to have been aware of the effect of s 19(2A), and failed to address that effect at any stage, the Commissioner should pay costs on a special basis with respect to the entirety of the proceeding on the basis of the usual principles.[11] Accordingly, it is unnecessary to address the effect of the alleged Calderbank letter though, for the sake of completeness, its effect is discussed in the reasons which follow.
[9]Amended Statement of Claim (7 April 2017), [122]–[142]; see especially [126]–[127].
[10]Amended Defence (5 May 2017).
[11]See, for example, Auswest Timbers Pty Ltd v Secretary, Department of Sustainability and Environment (No 2) [2010] VSC 513; and Gann v Hosny [2017] VSCA 318.
While cooperation between the parties which serves to narrow the issues in dispute is to be encouraged, it will not remedy the wrong done to a plaintiff who is forced to commence and continue a proceeding against an unmeritorious defence. Thus it is of no moment for the present application that the parties were able to sensibly dispose of several issues between them. What is more, the reliance by the Commissioner on this ground rings hollow given its indication that it will seek leave to appeal a finding of this Court which was made on the basis of the Statement of Agreed Facts:[12]
18.The Commissioner intends to seek leave to appeal from the Court of Appeal of the Supreme Court of Victoria. He considers there to be arguable error in four conclusions:
…
· the conclusion at paragraph [3] [of the judgment in the Principal Proceeding] that for the purposes of the Land Tax Act the taxable value of the land was $1.
[12]Commissioner’s Submissions on Costs (13 November 2017) [18]; North West Melbourne Recycling v Commissioner of State Revenue [2017] VSC 647, [3].
Model Litigant Guidelines
It is also appropriate in the present context to consider the Victorian Model Litigant Guidelines (“the Guidelines”) which apply to the Commissioner and set standards for behaviour in the conduct of proceedings. The Taxpayer made reference to Comaz (Aust) Pty Ltd v Commissioner of State Revenue, where I said in the context of an application for judicial review on the basis of a want of procedural fairness:[13]
… [T]he Commissioner contends that the questions of law and grounds of appeal raised in these proceedings concerned the obligations owed by the Tribunal to Comaz. It is said that none of the obligations concern anything owed by the Commissioner, whether pursuant to Model Litigant Guidelines or otherwise, so that questions about any such obligations do not arise for decision in these proceedings. Further, it is said that beyond merely making a reference to the Model Litigant Guidelines, Comaz has not identified what the content of the Commissioner’s obligations were said to be, to whom it is said they were owed, nor how the obligations interact with the Tribunal’s fair hearing and procedural fairness obligations or what the consequences of any alleged non-compliance with the Model Litigant Guidelines might mean. These questions raised by the Commissioner fail to grasp, in my view, the manner in which the guidelines should be seen to operate. It is not simply at the request or direction of another party upon which the obligations come into effect; they exist and are applicable at all times, requiring a party upon whom the obligations lie to conduct themselves in a manner above what may be expected from other litigants due to the policy considerations to which I have referred earlier. And while the introduction of the Civil Procedure Act 2010 (Vic) has raised the acceptable standard of conduct expected of all participants in civil litigation in this State, this development should not be seen as diminishing the effect of the Model Litigant Guidelines. Parties upon whom these obligations fall must continue to conduct themselves in a manner which recognises the imbalances the guidelines have sought to address.
[footnotes omitted]
[13]Comaz (Aust) Pty Ltd v Commissioner of State Revenue (2015) 101 ATR 339 at 371 [79].
While some clarity has been given to the effect of the Guidelines, their applicability in circumstances such as the present, where an application for a special costs order is being considered on the basis of behaviour which would be in breach of the Model Litigant Guidelines, remains unclear. In respect of the Civil Procedure Act 2010 (“the CPA”), the Guidelines state:
11.The obligation should be observed in conjunction with the provisions of the Civil Procedure Act 2010 and, in particular, the paramount duty and overarching obligations imposed by Chapter 2 of that Act.
Though this paragraph confirms that the obligations under the Guidelines are in addition to rather than instead of the CPA, it is not, in my view, exhaustive of the relationship between the two instruments.
A number of provisions of the Guidelines were said to be relevant to the Commissioner’s conduct of the litigation, particularly:
1.In order to maintain proper standards in litigation, the State of Victoria, its departments and agencies behave as a model litigant in the conduct of litigation.
2.The obligation requires that the State of Victoria, its departments and agencies:
(a)act fairly in handling claims and litigation brought … against the State or an agency;
(b)act consistently in the handling of claims and litigation;
(c)deal with claims promptly and not cause unnecessary delay;
…
(e)pay legitimate claims without litigation … where it is clear that liability is at least as much as the amount paid;
(f)consider seeking to avoid and limit the scope of legal proceedings by taking such steps, if any, as are reasonable having regard to the nature of the dispute, to resolve the dispute by agreement, including participating in appropriate dispute resolution (ADR) processes or settlement negotiations;
…
(i)do not rely on technical arguments unless the State’s or the agency’s interests would be prejudiced by the failure to comply with a particular requirement;
…
(k)do not undertake and pursue appeals unless the State or the agency believes that it has reasonable prospects for success or the appeal is otherwise justified in the public interest
…
Having regard to the matters to which reference has been made in concluding that the Taxpayer is entitled to its costs on a special basis, particularly the conclusion that the Commissioner ought to have known of the existence and effect of sub-s 19(2A), the Commissioner’s defence of the proceeding seems to be at odds with and not in compliance with the Guidelines. Of particular relevance is (e), which, it would be thought, would require the Commissioner to agree to pay the Respondent the amount ultimately awarded. This is not a case where an important principle of law might be tested over a disproportionately small sum. Rather, it is one where the law is and always was clear, and even if this were not the case, the Commissioner, at least by the time the matter came to trial, knew that the Taxpayer ought to be refunded the whole of the amount claimed. Once it was agreed between the parties that the taxable value of the land was $1.00,[14] it followed that the Taxpayer ought not to have paid the amount of tax that it had. The Commissioner’s continued defence of the claim after this time was on any view on a wholly technical basis, without any pretence of a belief that the Taxpayer ought not to refunded the sum claimed. The continuation of the litigation after this point is also a violation of (a), and the same could be said of the whole of the litigation once it is considered that the law was sufficiently clear upon a brief consideration of sub-s 19(2A). I note that paragraph (k) could only be relied on by the Taxpayer in relation to the appeal from the principal judgment, and I eschew any reliance on that ground, it being an inappropriate task for this court to consider the prospects of success of any appeal.
[14]See Statement of Agreed Facts (25 August 2017), [11].
Part 2.4 of the Civil Procedure Act 2010 outlines the sanctions which may be imposed on a participant in litigation as a result of a contravention by that litigant of the overarching obligations, including:[15]
[15]Civil Procedure Act 2010 s 29.
29 Court may make certain orders
(1) If a court is satisfied that, on the balance of probabilities, a person has contravened any overarching obligation, the court may make any order it considers appropriate in the interests of justice including, but not limited to—
(a) an order that the person pay some or all of the legal costs or other costs or expenses of any person arising from the contravention of the overarching obligation;
…
(f)any other order that the court considers to be in the interests of any person who has been prejudicially affected by the contravention of the overarching obligations.
(2) An order under this section may be made—
…
(b) on the court’s own motion.
It follows, in my view, that the content of the overarching obligations, are informed by the Guidelines in that they, in effect, particularise the more generally stated obligations provided for in the CPA as they apply to the circumstances of litigation between the State and its entities with its citizens. Consequently the Court is empowered under s 29 of the CPA to order that costs be paid on a special basis as a result of a breach of the overarching obligations, as so informed by the Model Litigant Guidelines in the circumstances of this proceeding.
In any event having found that a special costs order should be made on the basis of the usual principles it is not necessary to take the issue of failure to comply with the overarching obligations any further.
The alternative costs claim: Offer of compromise under Order 26
By letter dated 12 September 2017, the Taxpayer made an Offer of Compromise in accordance with Order 26 of the Supreme Court (General Civil Procedure) Rules 2015[16] (“Offer”). The Offer was made five days after the filing and serving of the Taxpayer’s Submissions (and 13 days before the Commissioner’s Submissions were to be filed). Under the Offer the Taxpayer stated that it would accept payment of $207,313.83 plus costs—representing a discount of some 15% from the Taxpayer’s total claim of $244,486.87 in this proceeding (also foregoing interest on this discount).
[16]Affidavit of Philip Earle (26 October 2017), Exhibit PE-5.
The Commissioner rejected the Offer. In his letter dated 28 September 2017, rejecting the Offer[17] (sent three days after he had filed his Submissions), the Commissioner stated that he considered there to be a ‘real basis for defending the claim’, adding that: ‘The contentions of the Commissioner, in this regard, are set out in his submissions, served 25 September 2017’. Yet, despite saying this, there is nowhere in the Commissioner’s submissions dated 25 September 2017 (or in his oral submissions at trial) any explanation for s 19(2A) of the TAA that is consistent with, or supportive of, the Commissioner’s defence.[18]
[17]Affidavit of Philip Earle (26 October 2017), Exhibit PE-6.
[18]See also North West Melbourne Recycling v Commissioner of State Revenue [2017] VSC 647, [35]–[37] and [48].
For these reasons, the Commissioner’s rejection of the Taxpayer’s Offer was unsatisfactory—and relevantly unreasonable—and was made at a time when the Commissioner ought to have seen, and appreciated, that the Taxpayer’s case was a very strong one.
In his rejection letter, the Commissioner also stated that he took the view that the Offer was ‘in fact a demand to capitulate’ and did ‘not contain any genuine compromise on the relief sought by your client in the proceeding’. In my view the Taxpayer’s Offer was, however, anything but an ‘offer to capitulate’—as it represented a 15% discount on the total claim in the circumstances where the Taxpayer’s case under Part 4 of the TAA was always a very strong one and, importantly, was an offer made by the Taxpayer with the intention of avoiding any further litigation on the matter (which had, by this stage, included related litigation at VCAT and in the Magistrates Court)—and which now has been prolonged by the Commissioner contesting this application for a special costs order, despite the existence of the Taxpayer’s Offer, and by his seeking a separate court fixture in which to contest this costs application.
The Taxpayer submitted, and in my view correctly, that this 15% discount on the Taxpayer’s claim did represent, a ‘genuine compromise’ of the Taxpayer’s claim.[19]
[19]See r 26.08(8) of the Supreme Court (General Civil Procedure) Rules 2015 , and also the comments of Mandie J in Landrow Properties Pty Ltd v Commissioner of State Revenue [2009] VSC 108 in the context of a very similar offer under Order 26.
In Landrow Properties, Mandie J made the following statements, having considered an Offer of Compromise which contained a 10% discount:[20]
9.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 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 pay costs on an indemnity basis…
…
11.Looking at the totality of the circumstances here, I think that the plaintiff’s 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 $100,000 together with the interest thereon. The claim was of sufficient strength—I think that it 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…
…
14.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.
[20]Landrow Properties Pty Ltd v Commissioner of State Revenue [2009] VSC 108, [9], [11] and [14] (“Landrow Properties”).
The Commissioner’s appeals against this indemnity costs order in Landrow (and against the substantive order of the trial judge) were both dismissed by the Court of Appeal.[21] In the course of their judgment, refusing the Commissioner leave to appeal against the costs orders, the Court of Appeal said:[22]
In our view his Honour did not take account of irrelevant considerations or fail to have regard to relevant matters. He clearly took account of the Commissioner’s role in collecting public revenue. Nor is the order so unreasonable as to suggest that his Honour must have erred in principle.
[21]Commissioner of State Revenue v Landrow Properties Pty Ltd (2010) 79 ATR 800.
[22]Commissioner of State Revenue v Landrow Properties Pty Ltd (2010) 79 ATR 800 at 819 [81].
Offers of compromise have a rightful and significantly important place in litigation because there is a public interest in discontinuing litigation before resources, including court resources, are unnecessarily spent on avoidable disputes. The Taxpayer says that this was the reason that the Offer was made in this case. In my view the Taxpayer is correct in contending that the purpose, and value, of offers of compromise would not be fulfilled if an award of costs on a special basis was not made by courts in appropriate cases such as this one.
In this vein, reference is made by the Taxpayer to the judgment of Lehane J in Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd[23] (referring to Calderbank offers) (a judgment referred to by Mortimer J in her Honour’s recent judgment in Shape Shopfitters Pty Ltd v Shape Australia Pty Ltd[24]):
Underlying that line of authority [concerning the effect of Calderbank letters] is, undoubtedly, a policy of the law in favour of the sensible compromise of disputes. That policy is promoted if a party who rejects a genuine and realistic offer of compromise risks an order for indemnity costs if it refuses the offer…
[23][1998] FCA 53.
[24][2017] FCA 1277 (“Shape Shopfitters”).
Discussing Calderbank offers (where the underlying public policy is considered to be relevantly the same for offers of compromise under Order 26), Mortimer J referred, in Shape Shopfitters,[25] to the following statement by Goldberg in Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2):[26]
It is necessary to look at the genuineness of the offer, whether it was realistic, the point of time at which it was made and that whether, in all the circumstances, it was such a reasonable offer as required the offeree to give careful consideration to it. If, in all the circumstances, it was unreasonable for the offeree to reject the offer and not accept it then there are strong grounds for the Court ordering indemnity costs on the basis that the offeror has made a fair and reasonable attempt to resolve the proceeding and has given the offeree the opportunity at a relevant point of time in the proceeding to consider the reasonableness of the offer.
[25][2017] FCA 1277 at [13].
[26][2000] FCA 602 at [17] (emphasis added).
In Shape Shopfitters, Mortimer J said “The application of these principles will always reduce to a consideration of the particular circumstances existing at the time a particular offer was made in a given proceeding.”[27]
[27][2017] FCA 1277 at [14].
As indicated previously, the Offer in this proceeding was made on 12 September 2017, five days after the Taxpayer’s Submissions had been filed and served, and the Offer had remained open for 14 days—until 26 September 2017. The Commissioner’s Submissions were filed and served on 25 September 2017. I think it is clear that the Commissioner was in the ‘perfect position’ at this time to give real consideration to the Taxpayer’s Offer—as it was open during the very time that the Commissioner was preparing his Submissions and, of course, well after the time that the Statement of Agreed Facts had been settled, and the Issue for Determination had been agreed by the parties.
However, not only was the Offer unreasonably rejected by the Commissioner, having regard to the strength of the Taxpayer’s case (as had been, by then, amply set out in the Taxpayer’s Submissions), but it was rejected by the Commissioner which the Taxpayer reasonably describes as being in stereotypical and clichéd terms—by asserting that the offer was ‘in fact a demand to capitulate’.[28] As I have observed, it was far from that. The Taxpayer knew that it had a strong case—having regard to the existence of Part 4 of the TAA and, in particular, the carve-out for land tax assessments provided by s 19(2A)—and the Taxpayer was, by making the Offer, clearly earnestly and properly wanting to bring the litigation to an end given what it considered to be the likely outcome if the trial proceeded.
[28]Affidavit of Philip Earle (26 October 2017), Exhibit PE-6.
Moreover, the Offer did amount to a genuine compromise—and the Commissioner ought to have been aware of this, having been a party to the Landrow case, where Mandie J held that an offer of compromise, representing a 10% discount, did amount to a genuine compromise of the Taxpayer’s claim. It should also be noted that this decision of Mandie J was challenged by the Commissioner in the Court of Appeal—but the Commissioner’s challenge was dismissed. In my view the Commissioner ought to have known better when he asserted that the Offer in this case ‘did not contain a genuine compromise’. Precedent, and common commercial experience, suggested that it did.[29]
[29]See also Full Federal Court (Dowsett, Edmonds and Gordon JJ) in Federal Commissioner of Taxation v Clark (No 2) (2011) 197 FCR 251 at 259 [31] (“Clark”) in relation to ‘tactical offers’, Clark being a case where indemnity costs were ordered against the Federal Commissioner, pursuant to an offer of compromise made by a taxpayer.
For these reasons, and for all of the reasons set out previously with respect to the Taxpayer’s application for special costs, I am of the opinion that the Commissioner’s refusal to accept the Taxpayer’s Offer was unreasonable—and that there is no reason for the Court to ‘otherwise order’ under r 26.08(2). It follows that, a special costs order from 15 September 2017 should be made, pursuant to r 26.08(2) and r 63.16 of the Rules were a special costs order not to be made on the primary basis of the Taxpayer’s application.
For completeness, mention should be made of the authorities supporting the power—and practice—of the Federal Court of Australia to award indemnity costs against the Federal Commissioner of Taxation, under comparable rules in that jurisdiction dealing with offers of compromise.[30] For example, in Clark, the Full Federal Court (Dowsett, Edmonds and Gordon JJ) said:[31]
It does not follow that the Commissioner may, simply by referring to such [internal] policies and procedures, escape the Court’s scrutiny of his conduct of litigation, including his conduct in refusing to accept offers of settlement. Once the Court’s jurisdiction is engaged the Commissioner becomes a litigant, subject to s 64 of the Judiciary Act, the provisions of the Federal Court Act and the Rules.
[30]See Seven Network Ltd v Commissioner of Taxation (No 2) [2015] FCA 201; International All Sports Ltd v Commissioner of Taxation (No 2) [2011] FCA 1027; and Commissioner of Taxation v Clark (No 2) (2011) 197 FCR 251 (referred to above).
[31]Commissioner of Taxation v Clark (No 2) (2011) 197 FCR 251 at 258 [28].
In this regard, the following observations of Mandie J in Landrow, are also noted:[32]
…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 contains 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.
[32]Landrow Properties Pty Ltd v Commissioner of State Revenue [2009] VSC 108, [13].
Interest
Section 58 of the Supreme Court Act 1986 provides as follows:
(1) If in a proceeding a debt or sum certain is recovered, the Court must, on application, unless good cause is shown to the contrary, allow interest to the creditor at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 … from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
In this case, the Taxpayer demanded the refund of the land tax from the Commissioner under cover of a letter dated 29 April 2016.[33] Interest should therefore be payable from this date. The rate of interest under s 2 of the Penalty Interest Rates Act 1983 has been fixed at 10% since 1 February 2017. In the period from 29 April 2016 to 31 January 2017, the prescribed rate of penalty interest was 9.5%. Interest should therefore be payable on the refund amount of $244,486.87 at the rate of 9.5% from 29 April 2016 to 31 January 2017, and at the rate of 10% from 1 February 2017 to the actual date of payment.
[33]Affidavit of Philip Earle (26 October 2017), [4].
Conclusion
For the preceding reasons the Taxpayer is entitled to a special costs order with respect to the whole of the proceedings, without temporal limitation, and to interest on the refund amount to which reference has been made at the rates during the periods identified by the Taxpayer as set out above.
The parties are to bring in orders to give effect to these reasons.
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