Pharmos Nominees Pty Ltd v Commissioner of State Taxation (No 2)

[2012] SASC 34

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

PHARMOS NOMINEES PTY LTD v COMMISSIONER OF STATE TAXATION (No 2)

[2012] SASC 34

Judgment of The Honourable Justice Gray

15 March 2012

PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - OTHER CASES - FAILURE IN PORTION OF A CASE

Question as to the order for costs on the appeal against an assessment of stamp duty – the appeal against the assessment of stamp duty was dismissed – the appellant, Pharmos, seeks an order the Commissioner recover only 90 per cent of his costs to be taxed, on the basis that the Commissioner advanced two arguments in opposing the appeal that were abandoned.

Held:  Commissioner to recover his costs to be taxed.

Supreme Court Act 1935 (SA) s 40(1); Supreme Court Civil Rules 2006 (SA) r 263(1), referred to.
Pharmos Nominees Pty Ltd v Commissioner of State Taxation [2012] SASC 24; Cretazzo v Lombardi (1975) 13 SASR 4; Ruddock v Vadarlis (No 2) (2001) 115 FCR 229; Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-478; Queensland Wire Industries Pty Ltd v BHP Co Ltd (1987) 17 FCR 211, considered.

PHARMOS NOMINEES PTY LTD v COMMISSIONER OF STATE TAXATION (No 2)
[2012] SASC 34

Civil

GRAY J:

1. The primary proceedings the subject of my judgment in Pharmos Nominees Pty Ltd v Commissioner of State Taxation[1] involved a stamp duties appeal.  That matter was resolved by an order dismissing the appeal.  A dispute between the parties has arisen as to the appropriate order as to costs.  The appellant, Pharmos Nominees Pty Ltd, seeks an order that the Commissioner of State Taxation recover only 90 per cent of his costs to be taxed on the basis that the Commissioner advanced two arguments in opposing the appeal that were abandoned.  The Commissioner seeks an order that he recover his costs of the appeal to be taxed.

   [1]    Pharmos Nominees Pty Ltd v Commissioner of State Taxation [2012] SASC 24.

2. Section 40(1) of the Supreme Court Act 1935 (SA) provides:

   Subject to the express provisions of this Act, and to the rules of court, and to the express provisions of any other Act whenever passed, the costs of and incidental to all proceedings in the court, including the administration of estates and trusts, shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and to what extent such costs are to be paid.

   Rule 263(1) of the Supreme Court Civil Rules 2006 (SA) is the relevant Rule of Court, and provides that “[a]s a general rule, costs follow the event.”

3. The Commissioner accepted that the award of costs is discretionary and that a successful party may be deprived of some or all of its costs in particular circumstances, including where the party has been unsuccessful on a discrete issue. 

4. In Cretazzo v Lombardi,[2] this Court considered the jurisdiction of the Court to deprive a successful party of a portion of its costs and to order a successful party to pay its opponent’s costs in part or in whole.  The plaintiff who sued for damages for personal injuries sustained in a road accident had exaggerated his symptoms.

   [2]    Cretazzo v Lombardi (1975) 13 SASR 4.

5. Bray CJ observed:[3]

   [3]    Cretazzo v Lombardi (1975) 13 SASR 4, 11-12.

   Order 65, rule 1 provides generally that all costs shall be in the discretion of the court or judge, subject to a proviso irrelevant for the present purpose.  Time and again attempts have been made to fetter that general discretion by the imposition of judge-made rules.  Time and again those fetters have been released by appellate courts.  I think the guiding principle still stands as it left the House of Lords in the famous case of Donald Campbell & Co v Pollak, that the general discretion is absolute and unfettered, except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation.

   I should mention, however, two more particular questions which have been specifically dealt with.

   The first is that there was once an idea that a successful party, though he might be deprived of his costs, could not be ordered to pay his opponent’s costs.  As a matter of fact, the so-called rule never applied to successful plaintiffs.  There was a time, however, when it did apply to wholly successful defendants:  Dicks v Yates.   It has now been held, however, that the rule when it existed was founded on the practice of the old Court of Chancery and that its existence disappeared in England after the enactment of s 5 of the Supreme Court of Judicature Act 1890:  Knight v Clifton. The South Australian counterpart of that section is s 40 of the Supreme Court Act 1935-1974, which for the present purpose is in indistinguishable terms and which reads:

   ‘Subject to the express provisions of this Act, and to the rules of court, and to the express provisions of any other Act whenever passed, the costs of and incidental to all proceedings in the court, including the administration of estates and trusts, shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and to what extent such costs are to be paid.’

   It follows, therefore, that there is now jurisdiction to order a successful party, even a wholly successful party and whether plaintiff or defendant, to pay his opponent’s costs in part or in whole.  Of course, it by no means follows that it would be a judicial exercise of the secretion to do so and it may well be that in many cases it would not, since there must be some reason for departing from the settled practice whereby the successful party receives his costs from his opponent;  see Donald Campbell & Co v Pollak.

   The next matter is this.  A successful party who has failed on certain issues may well not only be deprived of his own costs of those issues, but ordered in addition to pay his opponent’s costs of them, and in this context “issue” does not mean a precise issue in the technical pleading sense, but any disputed question of fact or, in my view, of law:  Foster v Farquhar.  In fact in that case the plaintiff, who succeeded to a substantial extent, was deprived of his costs and ordered to pay the defendant’s costs in relation to certain specific disputed items of special damage on which he failed.  Moreover it has been held by the House of Lords that the support of an extravagant claim by fraudulent acts or evidence may be good cause for depriving a successful plaintiff of his costs:  Huxley v West London Extension Railway Company.

   In this case the grounds on which the learned Judge acted were obviously connected with the litigation.  Nor do I think it could be said, apart from the specific question to which I am about to turn, that he did not exercise his discretion judicially.  It is nothing to the point that many judges would have exercised it differently or that many judges sitting at first instance have exercised it differently in comparable circumstances;  see, for example, Lipman v George Pulman & Sons Ltd;  Birmingham and District Land Co Ltd v London and North-Western Railway Co. 

   [Footnotes omitted.]

6. Jacobs J agreed but sounded what he called “a note of cautious disapproval” of applications to apportion costs according to the success or failure of one party or the other on various issues of fact or law which arise in the course of a trial.  He observed:[4]

   But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law.  The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case.  There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike.  I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.

   [4]    Cretazzo v Lombardi (1975) 13 SASR 4, 16.

7. In Ruddock v Vadarlis (No 2),[5] Black CJ and French J undertook an extensive examination of the principles and rationale for the awarding of costs.  The case concerned the plight of non-citizens aboard the MV Tampa.  In referring to Hughes v Western Australian Cricket Association (Inc)[6] and Queensland Wire Industries Pty Ltd v BHP Co Ltd,[7] with approval they said:[8]

   Within the general discretion of the courts to award costs it is accepted by decisions in both Australian and English jurisdictions that:

   Ordinarily costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order.

   Where a litigant has succeeded only upon a portion of the claim, the circumstances may make it reasonable that the litigant bear the expense of litigating that portion upon which he or she has failed.

   A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other parties’ costs of them.  In this sense ‘issue’ does not mean a precise issue in the technical pleading sense but any disputed question of fact or law.

   [References omitted.]

   [5]    Ruddock v Vadarlis (No 2) (2001) 115 FCR 229.

   [6]    Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-478.

   [7]    Queensland Wire Industries Pty Ltd v BHP Co Ltd (1987) 17 FCR 211.

   [8]    Ruddock v Vadarlis (No 2) (2001) 115 FCR 229, [11].

8. In the within proceeding, the Commissioner referred to the decision in GT Corporation Pty Ltd v Amare Safety Pty Ltd,[9] where Robson J undertook an exhaustive review of the authorities in Australia and England on the question of costs, and in particular the topic of issue by issue costs.  In the course of that review, Robson J referred to the above authorities and ultimately expressed his conclusions as follows:[10]

   [9]    GT Corporation Pty Ltd v Amare Safety Pty Ltd [2008] VSC 296.

   [10]   GT Corporation Pty Ltd v Amare Safety Pty Ltd [2008] VSC 296, [59].

   Based on these authorities, the general principles relevant to GT’s application in relation to costs are as follows.

   1. The award of costs is in the discretion of the Court or Judge: s 24 Supreme Court Act 1986.

   2.    The discretion must be exercised judicially: Donald Campbell & Co v Pollak;[11] Cretazzo v Lombardi.[12]

   3.    The discretion cannot be exercised arbitrarily or capriciously and it cannot be exercised on grounds unconnected with the litigation: Cretazzo v Lombardi;[13] or the circumstances leading up to the litigation: Oshlack v Richmond City Council.[14]

   4.    Costs are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings. The order is not made to punish the unsuccessful party:  Latoudis v Casey.[15]

   5.    As a general rule, costs should follow the event, and a successful party should obtain all of the costs of the action even though it failed to establish some of the alternative heads of its claim:  Ritter v Godfrey;[16] McFadzean v CFMBEU.[17]

   6.    Rule 63.04(1) permits the court, in its discretion, to make an order not only as to a distinct question or issue in the pleading sense, but also to any part of the proceeding:  Woolf v Burmon;[18] Cretazzo v Lombardi.[19]

   7.    The court may, in its discretion, decline to order costs in favour of a successful party, or may order the successful party to pay the costs of the unsuccessful party, where the plaintiff failed to establish discrete heads of claim or failed to establish issues which it pursued in its claim, although ultimately succeeding on the basis of another discrete head of claim:  McFadzean v CFMBEU.[20]

   8.    It is not necessary that the issue concerned was raised unreasonably by the party:  Rosniak v GIO.[21] Although, a relevant consideration may include whether the issue was raised unreasonably: Mickelberg v Western Australia.[22]

   9.    The court may, in its discretion, make an order that is a single order, fixing what proportion of a party’s costs should be paid by another party, thus obviating cross-orders or particular orders as to particular costs:  Byrns v Davie;[23] McFadzean v CFMBEU;[24] Nolan v Nolan.[25]

   10.    The caveat referred to by Jacobs J in Cretazzo v Lombardi[26] may have less weight today than when it was decided:  Primcom Pty Ltd v Sqarioto;[27] Mickelberg v Western Australia;[28] and Victoria v Master Builders Association of Victoria.[29]

   11.    Although the quantum of damages recovered compared to that claimed may be a relevant consideration to the court in exercising its discretion, greater emphasis should be given to the failure or loss on discrete claims or issue and the time occupied in relation to them.

   [11] [1927] AC 732.

   [12] (1975) 13 SASR 4.

   [13] (1975) 13 SASR 4.

   [14] (1998) 193 CLR 72 per McHugh J at 97.

   [15] (1990) 170 CLR 534 per Mason CJ at 543, per Toohey J at 562 – 563, per McHugh J at 566 – 567.

   [16] (1920) 2 KB 47.

   [17] [2007] VSCA 289.

   [18] (1939) 13 ALJR 431 (HC).

   [19] (1975) 13 SASR 4 at 12.

   [20] [2007] VSCA 289.

   [21] (1997) 41 NSWLR 608.

   [22] [2007] WASC 140 (S) per Newnes J at [43] – [46].

   [23] (1991) 2 VR 568 per Gobbo J at 571.

   [24] [2007] VSCA 289 at [153] [158].

   [25] [2004] VSCA 134 [6].

   [26] (1975) 13 SASR 4.

   [27]   (Unreported, SCV, Eames J, 24 April 1995).

   [28] [2007] WASC 140 (S) at [30]-[35].

   [29]   (Unreported, SCV CA, 15 December 1994, BC 9408430).

9. I respectfully adopt these conclusions, as I consider that they reflect the current state of the authorities on the question of issue by issue costs, and I agree in particular that the caveat referred to by Jacobs J in Cretazzo v Lombardi may have less weight today than when that case was decided.

10. Pharmos submitted that it was successful in regard to two issues that warrant a special order as to costs.  The first related to whether the instrument said to be subject to duty – the 24 February 2006 agreement – constituted a conveyance on sale for the purposes of the Stamp Duties Act 1923 (SA). It was said that initially the Commissioner did not seek to argue such a proposition, but that during the course of argument, it adopted the position that it was necessary to consider whether there was a conveyance on sale, but finally submitted that the instrument did not constitute a conveyance on sale. The second issue related to whether the 24 February 2006 agreement constituted an equitable assignment of the right to future income. This was the Commissioner’s position both in its initial outline of submission and at the hearing. Ultimately, Pharmos submits that the Commissioner resiled from the position that the agreement was an equitable assignment. Pharmos concluded its submission by pointing out that it was required to address these aspects unnecessarily and that a reduction of ten per cent on the costs to be recovered by the Commissioner would fairly reflect the costs thrown away.

11. The Commissioner submitted that the issues raised on the appeal were complex and that the state of the authorities were such that the parties could not reasonably be expected to make irrevocable concessions of law in the course of submissions.  It was pointed out that the oral and written submissions of Pharmos were extensive, ranged very widely and raised many points.  The written submissions of Pharmos extended beyond 100 pages.  The oral submissions extended over several days.  It was pointed out that the submissions of both parties underwent some refinement as the appeal progressed as a consequence of the need to respond to the other party’s submission as well as dialogue with the bench.

12. The Commissioner pointed out that the debate concerning conveyance on sale arose during the course of argument and was never put more than a possible alternative position.  The submissions concerning the topic of an equitable assignment was only developed as an alternative argument

13. In my primary reasons, I express concern that aspects of the overall transaction were not before the Court.  In particular, I observed that the material before this Court did not include documents that related to variations to the 23 December 2005 agreement that evidenced the commencement of the transaction.  To my mind, this placed the Court in some difficulty in fully understanding the substance of the overall arrangements and in particular to place the instrument said to be dutiable in its proper context.  This problem compounded the difficulty arising from a novel and complex arrangement and intersection of that arrangement with the complex statutory regime.  These observations go some way to explaining detailed submissions that were advanced on the appeal and in particular, the way those submissions were developed and refined during the course of the appeal.  Ultimately, the Court was greatly assisted by the entirety of the submissions both written and oral advanced by both counsel.

14. Pharmos was unsuccessful in its appeal on the primary questions – whether the instrument was dutiable, the value of the property and whether penalty tax was properly imposed.  I do not consider that in the circumstances the Commissioner should be deprived of any proportion of his costs.  When regard is had to the complexity of the issues arising and to the relevant legislation, I do not consider that the Commissioner acted unreasonably in regard to any aspect of the appeal.

15. There is one further matter to which attention should be drawn.  The Commissioner submitted that in a case such as the present, it would be unfortunate if a party was to be reluctant to depart from or refine a submission at the outset for fear of being deprived of costs even if successful in the ultimate outcome.  It was said that this consideration would not promote the efficient conduct of litigation or promote good advocacy.  Attention was drawn in particular to the following observation of Jacobs J in Cretazzo v Lombardi:[30]

    But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law.  The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case.  …

    [30]   Cretazzo v Lombardi (1975) 13 SASR 4, 16.

16. In my view this submission does raise a relevant consideration and one that favours there being no reduction in this case.  As noted above, this caveat of Jacobs J may not have the weight that it carried in earlier times, but in my view it is of weight in the circumstances of this particular case. 

17. I order that the Commissioner recover his costs to be taxed.