S & W & H (Costs)

This matter concerned an application for costs following a successful appeal by the applicants, S, W, and H, against the respondent, the Commissioner of Taxation. The appeal concerned the deductibility of certain expenses incurred by the applicants.

The primary legal issue before the Full Federal Court was whether the applicants, having succeeded on their appeal, were entitled to an order for costs against the Commissioner, notwithstanding the general rule that costs follow the event in tax litigation. The court was required to consider the application of the principles governing costs awards in tax matters, particularly where the Commissioner’s position, while ultimately unsuccessful, was not considered frivolous or vexatious.

The court noted that while the Commissioner had been unsuccessful, the appeal raised important questions of law regarding the interpretation of relevant tax legislation. The court applied the principle that costs should generally follow the event, but that discretion exists to depart from this rule in exceptional circumstances. In this instance, the court found that the Commissioner’s conduct in defending the appeal did not warrant a departure from the usual order. The court considered the nature of the appeal, the arguments advanced by both parties, and the public interest in clarifying the law.

The court ordered that the Commissioner pay the applicants' costs of the appeal, to be summarily assessed or taxed if not agreed.