The University of Melbourne v Commissioner of State Revenue (No 2)
[2021] VSC 322
•4 June 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST
S ECI 2020 02747
| THE UNIVERSITY OF MELBOURNE (ABN 84 002 705 224) | Appellant |
| v | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | Determined on the papers; Appellant’s written submissions filed 1 April 2021; Respondent’s written submissions filed 22 April 2021; Appellant’s written submissions in reply filed 26 April 2021 |
DATE OF JUDGMENT: | 4 June 2021 |
CASE MAY BE CITED AS: | The University of Melbourne v Commissioner of State Revenue (No 2) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 322 |
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COSTS – Supreme Court (General Civil Procedure) Rules 2015 r 26.08 – Offer of compromise by plaintiffs – Multiple offers of compromise – Whether offer a genuine attempt at compromise or designed to obtain costs protection – Whether indemnity costs should be granted – Whether in the circumstances there should be an order otherwise despite offer of compromise – Court’s discretion in awarding costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Ms J Batrouney QC with Mr C Sievers | Ashurst |
| For the Respondent | Mr C Young QC with Ms S Gory | State Revenue Office |
HIS HONOUR:
Introduction
On 1 April 2021, the Court handed down reasons for judgment in respect of an appeal by the University of Melbourne (‘the University’) against land tax assessment number 25745114 (‘the Assessment Notice’) dated 15 February 2019 and issued by the respondent, the Commissioner of State Revenue (‘the Commissioner’) under the Land Tax Act 2005 (Vic) (‘the Act’) for the period 1 January 2019 to 31 December 2019. The Assessment Notice set out the tax payable in relation to all land owned by the University, which included the land at 108-128 Leicester Street, Carlton and at shop 108-128 Leicester Street, Carlton (collectively, ‘the land’). The Assessment Notice identified the tax payable with respect to the land as $704,475.
On 15 April 2019, the University objected to the Assessment Notice pursuant to s 96 of the Taxation Administration Act 1997 (Vic) (‘the TAA’). By a letter dated 28 February 2020, the Commissioner disallowed the University’s objection to the Assessment Notice (‘Notice of Determination’).
On 8 April 2021, the Court made orders, inter alia, allowing the appeal, setting aside the Notice of Determination dated 28 February 2020 remitting the matter to the Commissioner to be determined according to law and s 114(1) of the TAA, and directed the parties to file and serve submissions on costs.
On 1 April 2021, the University filed submissions in support of an application that its costs of the proceeding be paid on an indemnity basis from 28 August 2020 in accordance with an offer of compromise made by it on 26 August 2020 (the ‘First Offer of Compromise’) or alternatively, from 30 November 2020 onwards in accordance with an offer of compromise made by the University on 28 November 2020 (the ‘Second Offer of Compromise’).
By its submissions on costs filed 22 April 2021, the Commissioner accepts that indemnity costs should be ordered in favour of the University from 30 November 2020 onwards as a result of the Second Offer of Compromise, but disputes that indemnity costs should be ordered from 28 August 2020 as a result of the First Offer of Compromise.
On 27 April 2021, the University filed its submissions in reply, countering the Commissioner’s arguments for not awarding indemnity costs from the First Offer of Compromise.
It is necessary therefore to recount in brief the history of the matter and the terms of both the First Offer of Compromise and the Second Offer of Compromise.
History of the proceeding
On 15 April 2019, the University lodged with the Commissioner an objection to the Assessment Notice on the basis that the land was exempt land under s 74 of the Land Tax Act 2005 (Vic) (‘the Act’). The grounds of objection, in essence, were that the land was used by a charitable institution (the University) exclusively for the charitable purpose of advancing education through the provision of accommodation to the University students by arrangements made by lease and licence with CLV Melbourne Pty Ltd (‘CLVM’).
On 28 February 2020, the Commissioner notified the University by Notice of Determination, that while the Commissioner accepted that the University was a charitable institution, the Commissioner had disallowed the objection on the basis that the land was not used by the University and instead was used by CLVM. Alternatively, the Commissioner determined that if the land was used by the University, it was also used by CLVM and was not therefore used exclusively for charitable purposes.
On 29 April 2020, the University requested that the Commissioner treat the objection as an appeal and cause it to be set down for hearing under s 106(1) of the TAA.
On 18 June 2020, the parties participated in a ‘without prejudice’ conference to discuss the matter further prior to the matter formally being referred to the Court within the 60 day statutory time period.
On 26 June 2020, the Commissioner confirmed that whilst the matter would be referred to the Court within the 60 day statutory time period, it remained open to the University’s request for a ‘without prejudice’ conference.
On 29 June 2020, the University was notified by the Court that the appeal had been set down as proceeding S ECI 2020 02747.
On 3 July 2020, the University and the Commissioner attended a ‘without prejudice’ conference with their respective counsel in attendance.
On 17 July 2020, the Court made orders by consent for the timetabling of the matter, inter alia, requiring that the University file and serve its written submissions and any affidavit material by 30 September 2020. This was subsequently extended to 30 October 2020 by consent orders made on 11 September 2020.
On 22 July 2020, the University wrote to the Commissioner referring to the ‘without prejudice’ conference held on 3 July 2020 and requested that the Commissioner consider a number of issues in respect of the University’s position. The letter asserted that the University’s legal position was strong in light of decided cases and notified the Commissioner that if the Commissioner determined to pursue the proceedings, the University intended to issue an offer of compromise under order 26 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (‘the Rules’).
On 14 August 2020, the Commissioner informed the University that after careful consideration of the points raised in the letter, it intended to continue with the proceeding.
On 26 August 2020, the University served the First Offer of Compromise on the Commissioner. The First Offer of Compromise waived any claim in respect of the University’s costs incurred up to the offer date, in the amount of approximately $130,000, if the Commissioner granted the exemption in respect of the land tax on the land for the 2019 land tax year under s 74 of the Act.
The University’s solicitor deposed that at the time of preparing the First Offer of Compromise he had calculated the quantum of costs which had been incurred by the University on a solicitor/client basis. He deposed that the work that he had undertaken to that point included his affidavit pursuant to r 7.07 of the Rules, summons for directions, consent orders for timetabling, along with work on the supporting affidavits and written submissions that were due to be filed on 30 September 2020 (but which was extended to 30 October 2020).
On 7 September 2020, the Commissioner rejected the First Offer of Compromise.
On 29 October 2020, the University filed and served its submissions and supporting affidavits of Allan Tait and Michael Lynch.
On 10 November 2020, the University provided a draft statement of facts and issues to narrow down the factual issues and issues of contention.
On 28 November 2020, the University served the Second Offer of Compromise waiving any claim in respect of its costs incurred up to the date of the offer in the amount of approximately $305,000, if the Commissioner granted the exemption in respect of the land tax assessed on the land for the 2019 land tax year. The University’s solicitor deposed that he had calculated the quantum of costs which had been incurred by the appellant on a solicitor/client basis.
On 8 December 2020, the Commissioner filed and served its submissions and provided comments on the draft statement of facts and issues provided by the University on 10 November 2020.
On 8 December 2020, the Commissioner provided the University with a letter formally rejecting the Second Offer of Compromise under r 26.02 of the Rules.
On 18 December 2020, the University filed and served its submissions in reply.
On 21 December 2020, the parties agreed to the facts and issues in the statement of agreed facts and issues for the purposes of s 191 of the Evidence Act 2008 (Vic), filed and served on the Commissioner on 22 December 2020.
The Appeal was heard on 9 February 2021, and as noted above reasons were handed down on 1 April 2021 with formal orders made on 8 April 2021.
Submissions and determination
The parties accept that the Court has a discretion as to the making of orders for costs including full power to determine by whom and to what extent the costs are to be paid.[1] Of course, whilst the discretion is absolutely unfettered, it must be exercised judiciously and not arbitrarily or capriciously.[2]
[1]Supreme Court Act 1986 (Vic) s 24.
[2]Donald Campbell & Co Ltd v Pollak [1927] AC 732, 811–12.
The power and discretion of the Court as to costs is to be exercised subject to and in accordance with order 63 of the Rules.
Rule 63.16 of the Rules provides:
Where an offer of compromise is served and the offer has not been accepted at the time of verdict or judgment, liability for costs shall be determined in accordance with r 26.08.
Rule 26.08(2)(b) of the Rules provides:
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 - … in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff’s costs in respect of the claim before 11.00 a.m. on the second business day after the offer was served, taxed on the ordinarily applicable basis and for the plaintiff’s costs thereafter taxed on an indemnity basis.
Also relevant is r 26.08(8) of the Rules which provides:
Where the plaintiff obtains judgment for the recovery of a debt or damages, and the amount of the debt or the damages are 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.
The Commissioner does not dispute that the University has obtained a judgment no less favourable than the terms of both the First Offer of Compromise and the Second Offer of Compromise.
The starting point therefore is that the University is entitled to indemnity costs as and from 11:00am on the second business day after the service of the First Offer of Compromise. The Commissioner submits that the Court should ‘otherwise order’ within the meaning of r 26.08(2).
The burden placed on a party seeking to persuade the Court that it should ‘otherwise order’ has been said to be a heavy one.[3] The onus requires the party resisting an order for indemnity costs to establish ‘compelling and exceptional’ circumstances justifying a departure from the prima facie rule.[4]
[3]Simonovski v Bendigo Bank Ltd (No 2) [2003] VSC 139 [17], cited with approval by the Court of Appeal in Gamboni v Bendigo and Adelaide Bank Ltd [2013] VSCA 282 [51].
[4]Re Saric; Saric v Vukasovic (No 2) [2018] VSC 254 [16].
The Commissioner relies upon three matters. First, that the offer did not represent a genuine compromise; secondly, that its defence of the appeal was not hopeless and there was no authority on the proper interpretation of s 74 of the Act; thirdly, the offer was at an early point in the litigation before submissions and evidence had been filed by the University.
The Commissioner concedes that r 26.08(8) of the Rules is not directly applicable, but nevertheless submits that the genuineness of the compromise is the first matter to consider when considering the application of r 26.08(2)(b). I agree; the extent of any proposed compromise is of clear importance in the proper exercise of the costs discretion including whether to ‘otherwise order’ for the purposes of r.26.08(2)(b). Further, whilst r 26.08(8) does not apply in terms to the nature of the present proceeding, it is broadly analogous given the nature of the appeal which turned solely on the interpretation of s 74 of the Act.
Whilst the First Offer of Compromise was in substance only a ‘walk away’ offer, walk away offers may well represent a real compromise for a consideration of real value.
Whether a walk away offer represents a real compromise for a consideration of real value must be assessed on a case by case basis. For example, in Brookville Multiplex Limited v International Litigation Funding Partners Pty Ltd (No 4),[5] Finkelstein J cited as an example of a genuine offer of compromise, an offer made in circumstances where the case had progressed for some time and the parties’ costs (foregone by the terms of the offer) were quite high, and observed that in such an event an offer to walk away may in a business sense be a significant offer.
[5]Brookville Multiplex Ltd v International Litigation Funding Partners Pte Ltd (No 4) [2009] FCA 803 [7], [13].
Similarly, Greenwood J in Clark v Commissioner of Taxation[6] the ‘walk away’ offer considered by his Honour was an offer to abandon a claim for party/party costs of between $123,004 and $184,506 which had been incurred after the carrying out of a significant number of interlocutory steps.[7]
[6]Clark v Commissioner of Taxation [2010] FCA 415 (‘Clark’).
[7]In Clark (n 6), the offer of compromise was made on 9 December 2008 in circumstances where the applicant had incurred solicitor/client costs of $307,510 and after it had filed affidavit evidence in August and September 2008.
In contrast, the First Offer of Compromise in the present circumstances was made at a comparatively early stage and had been foreshadowed as early as 22 July 2020. Acceptance of the offer by the Commissioner involved a complete capitulation in respect of land tax said to be payable by the University in the amount of $704,475, but more significantly an acceptance by the Commissioner of the University’s interpretation of s74 of the Act. The University was offering to resolve the appeal but only on a basis that the Commissioner accept an interpretation of s 74 of the Act which would not only apply to the relevant tax year, but which at a practical level would apply for all future assessment years and in circumstances where s 74 had not previously been the subject of judicial determination.
Notwithstanding that I accepted the University’s submissions on the appropriateness of undertaking the same analysis as the majority did in Ryde Municipal Council v Macquarie University (‘Ryde’),[8] both parties accepted that Ryde was not binding, and the case was decided by a narrow majority[9] with a strong dissent. The Commissioner was right to submit that Ryde involved a decision of the High Court on a different exemption provision (albeit cast in very similar terms) and that each exemption provision had to be interpreted in its own context, including having regard to the legislative history of that particular provision. I did not consider the Commissioner’s arguments unreasonable and indeed I found the submissions of all parties both written and oral of considerable assistance and of the highest quality.
[8]Ryde Municipal Council v Macquarie University (1978) 138 CLR 633.
[9]3 v 2 (held by Gibbs ACJ, Stephen and Murphy JJ, Jacobs and Aickin JJ dissenting).
In the circumstances, I do not accept that the First Offer of Compromise was of a genuine compromise.[10] Given its terms and having regard to the fact the University had made it clear from such an early stage that such an offer would be made if the Commissioner did not capitulate, in my opinion the First Offer of Compromise was designed to obtain costs protection.
[10]See, inter alia, Bensons Property Group Pty Ltd v Key Infrastructure Australia Pty Ltd[No 2] [2021] VSCA 116 [21].
As such, I consider it appropriate to ‘otherwise order’ for the purposes of r 26.08(2).
In the circumstances, the University will be entitled to indemnity costs as a result of the Second Offer of Compromise but not as a result of the First Offer of Compromise. Accordingly, I will make orders that the Commissioner pay the University’s standard costs up to and including 11:00am on 30 November 2020,[11] but thereafter the University’s costs on an indemnity basis.
[11]As noted above, the Second Offer of Compromise was served on 28 November 2020 and the Commissioner accepts that indemnity costs should follow as a consequence of the Second Offer of Compromise.
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