Seven Network Limited v Commissioner of Taxation

Case [2015] FCA 201

FEDERAL COURT OF AUSTRALIA

Seven Network Limited v Commissioner of Taxation (No 2) [2015] FCA 201

Citation: Seven Network Limited v Commissioner of Taxation
(No 2) [2015] FCA 201
Parties: SEVEN NETWORK LIMITED v COMMISSIONER OF TAXATION
File number(s): NSD 146 of 2012
NSD 148 of 2012
Judge(s): BENNETT J
Date of judgment: 13 March 2015
Catchwords: COSTS – indemnity costs – Calderbank offer immediately prior to hearing – counsel’s advice that case was arguable – public interest – reasonableness of refusal
Legislation: Federal Court of Australia Act 1976 (Cth) s 43
Taxation Administration Act 1953 (Cth) Pt IVAA
Cases cited: Calderbank v Calderbank [1975] 3 All ER 333
CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173
Federal Commissioner of Taxation v Clark and Another (No 2) [2011] FCAFC 140
Taleb v GM Holden Limited (2011) 286 ALR 309
Date of hearing: 9 March 2015
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 26
Counsel for the Applicant: M P Kulevski
Solicitor for the Applicant: Clayton Utz
Counsel for the Respondent: Mr D Hume
Solicitor for the Respondent: Australian Government Solicitor

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 146 of 2012
NSD 148 of 2012
BETWEEN:

SEVEN NETWORK LIMITED
Applicant
AND:

COMMISSIONER OF TAXATION
Respondent

JUDGE:

BENNETT J

DATE OF ORDER:

13 MARCH 2015

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The respondent pay the applicant’s costs up to 10:00am on 31 October 2013 on the ordinary basis.

2.The respondent pay the applicant’s costs after 10:00am on 31 October 2013 on an indemnity basis.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 146 of 2012
NSD 148 of 2012
BETWEEN:

SEVEN NETWORK LIMITED
Applicant
AND:

COMMISSIONER OF TAXATION
Respondent

JUDGE:

BENNETT J

DATE:

13 MARCH 2015

PLACE:

SYDNEY

REASONS FOR JUDGMENT

  1. On 22 December 2014 I made orders that Seven Network Limited’s (Seven) appeal against The Commissioner of Taxation’s (Commissioner) Notice of Decision, in relation to three penalty notices issued to Seven, be allowed (Seven Network Limited v Commissioner of Taxation [2014] FCA 1411 (the Decision)).  I do not propose to repeat the factual background to the litigation which is set out in the Decision.  As a result, Seven was not held liable for withholding tax on payments made by it for the provision of a signal, the ITVR Signal, for use in connection with live Australian broadcasting during the Olympic Games.  I reserved the question of costs, at the request of the parties. 

  2. Seven now seeks an order that it be paid ordinary costs up to 10:00am on 31 October 2013, when the hearing commenced, and indemnity costs thereafter. It relies on the general discretion of the Court as to costs pursuant to s 43 of the Federal Court of Australia Act…

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AGLC
Seven Network Limited v Commissioner of Taxation [2015] FCA 201
Case
[2015] FCA 201
Decision Date

CaseChat Overview and Summary

In the case of Seven Network Limited v Commissioner of Taxation, the dispute centred on the Commissioner's refusal to accept a settlement offer made by Seven Network Limited immediately prior to a hearing. The offer, made through a Calderbank letter, proposed that Seven would recover approximately 70% of the moneys paid to the Commissioner and would pay all its own costs. The Commissioner, through its Australian Government Solicitor, rejected this offer and proposed a counter-offer, which effectively meant Seven would obtain only around 30% of the moneys paid to the Commissioner but would still pay its own costs. The Federal Court was tasked with determining whether the Commissioner's refusal of the settlement offer was reasonable, and if not, whether Seven was entitled to indemnity costs.

The court had to consider the reasonableness of the Commissioner's refusal to accept Seven's settlement offer. The key legal issue was whether the Commissioner's refusal was unreasonable, and if so, whether this justified awarding indemnity costs to Seven. The court acknowledged that the assessment of reasonableness was to be made based on the circumstances at the time of the offer, not with hindsight. The court examined the content of the Calderbank letter, the counter-offer by the Commissioner, and the advice given to the parties by their counsel. It also considered the public interest and the arguability of Seven's case as factors influencing the reasonableness of the Commissioner's decision.

The court concluded that the Commissioner's refusal of the settlement offer was unreasonable. The court found that the Commissioner's counter-offer significantly disadvantaged Seven, offering only a fraction of what Seven had proposed. Additionally, the court took into account the advice from counsel that Seven's case was arguable, and the public interest in encouraging settlements. Consequently, the court held that the Commissioner was not entitled to recover its costs from Seven, and ordered the Commissioner to pay Seven's costs on an indemnity basis from the time the hearing commenced. The court's decision highlighted the importance of considering both the procedural fairness and the substantive merits in the context of settlement negotiations and the awarding of costs.

Orders

Orders of the court

1. The respondent pay the applicant’s costs up to 10:00am on 31 October 2013 on the ordinary basis.

2. The respondent pay the applicant’s costs after 10:00am on 31 October 2013 on an indemnity basis.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

It is necessary to understand certain events and the context in which they took place:·Between 6 June 2007 and 23 December 2009, the Commissioner issued three penalty notices. Seven lodged objections to the three penalty notices.·On 2 December 2011, the Commissioner issued a Notice of Objection decision on Seven’s objections, refusing to remit in whole or in part the penalties (Objection Decision).·On 30 January 2012 and 31 January 2012, Seven filed its Notice of Appeal against the Objection Decision and an Originating Application and Statement of Claim respectively.·On 30 July 2013, a Joint Statement of Experts was filed in the proceedings.·On 16 October 2013, the parties agreed on a Statement of Agreed Facts.·On 28 October 2013, the parties attended what can be described as a settlement meeting. At that meeting, each party presented a settlement offer. Each of those offers was rejected.·On 29 October 2013, Clayton Utz as solicitors for Seven sent a letter (the Calderbank Letter) setting out the terms of Seven’s offer of settlement, in the same terms as those presented the previous day. The letter stated that a response was required by 10:00am on 31 October 2013. The offer was, in effect and relevantly, that Seven would recover approximately 70% of moneys paid to the Commissioner and pay all of its own costs.·On 30 October 2013, the Australian Government Solicitor for the Commissioner sent a letter to Clayton Utz (the Commissioner’s Calderbank Letter) in which it refused Seven’s offer and set out a counter-offer, in effect and relevantly, that the Commissioner would retain the moneys paid to the Commissioner but permit Seven certain tax deductions and pay all of his own costs. For the purposes of this application, the parties accept that the effect of this offer was that Seven would obtain an equivalent to approximately 30% of the moneys paid to the Commissioner.·On 31 October 2013, the hearing commenced. There are a number of events cited by the parties that took place since proceedings were commenced that are not, in my view, of direct relevance to the present issue. They include:·In 2008, Seven provided the Commissioner with an opinion from Senior Counsel to the effect that Seven would be successful.·In 2010, the Commissioner obtained advice from Senior Counsel to the effect that, inter alia, that the Olympic Broadcasting Committee had made a cinematograph film which was transmitted to Seven or, in the alternative, that the right to use the visual images and sounds was a right to use “other like property” within the meaning of the Swiss Treaty such that Seven was liable to withholding tax.THE COMMISSIONER’S SUBMISSIONS It is not in contention that the question to be addressed is the reasonableness of the Commissioner in refusing Seven’s offer. If that refusal was unreasonable, Seven will be entitled to indemnity costs. As explained in CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75], that is to be assessed by reference to the circumstances facing the Commissioner at the time of the offer and not with the wisdom of hindsight.

Ratio Decidendi

Legal Principle Established

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