Vicinity Funds RE Ltd v Commissioner of State Revenue (No 5)
[2025] VSC 132
•21 March 2025
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST
S ECI 2021 00032
| VICINITY FUNDS RE LTD | First Appellant |
| RECO BOURKE PRIVATE LIMITED | Second Appellant |
| v | |
| COMMISSIONER OF STATE REVENUE | Respondent |
S ECI 2021 00033
| VICINITY FUNDS RE LTD | First Appellant |
| RECO BOURKE PRIVATE LIMITED | Second Appellant |
| THE TRUST COMPANY LIMITED | Third Appellant |
| v | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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JUDGE: | Nichols J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | On the papers, submissions filed 21 and 28 November 2024 |
DATE OF JUDGMENT: | 21 March 2025 |
CASE MAY BE CITED AS: | Vicinity Funds RE Ltd v Commissioner of State Revenue (No 5) |
MEDIUM NEUTRAL CITATION: | [2025] VSC 132 |
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COSTS — Discretion — Costs apportionment — Where appellants succeeded on only one ground of appeal — Whether to depart from general rule of costs follow the event — Relationship between issues on appeal — Where appellants’ success not mere ‘technicality’ — Apportioning costs as a percentage — Appellants entitled to 80 percent of costs — Spotless Group Limited v Premier Building and Consulting Pty Ltd and Northern Suburban Properties Pty Ltd [2008] VSCA 115 — Investec Bank (Aust) Ltd v Glodale Pty Ltd (No 2) [2009] VSCA 133 — Thurin v Krongold Constructions (Aust) Pty Ltd (No. 2) [2022] VSCA 252.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellants | N/A | King & Wood Mallesons |
| For the Respondent | N/A | State Revenue Office |
HER HONOUR:
The issue for determination is the appropriate order for costs in respect of two appeals instituted under s 106 of the Taxation Administration Act 1997 (Vic), decided in Vicinity Funds RE Ltd v Commissioner of State Revenue (No. 4) [2024] VSC 658. The Appellant taxpayers appealed against the Commissioner’s determinations disallowing the taxpayers’ objections against assessments to duty under the Duties Act 2000 (Vic) (Duties Act). The Appellants relied on several grounds of appeal. They succeeded on one ground, with the result that the determinations were set aside and the matters remitted to the Commissioner for determination according to law. The Appellants seek their costs. The Commissioner says that there should be no order as to costs, such that each party will bear their own costs of the proceedings.
Appellants’ Submissions
The Appellants submit that they are entitled to costs following the general principle that costs follow the event, having achieved substantial and practical success in these proceedings. The Appellants’ case challenged the correctness of the Determinations, which were found to be incorrect. The ‘event’ of success, being the practical outcome of the proceeding, is not contestable, nor are there any special circumstances or disentitling conduct by the Appellants. Through these appeals, they obtained their entitlement to have their Objections lawfully determined. As a result, they are prima face entitled to their costs.
The Appellants said that two considerations could justify departure from the general position — disentitling conduct by the Appellants or the existence of special circumstances. Neither consideration applies here. The Appellants have not engaged in any disentitling conduct and none is alleged by the Commissioner. The size and complexity of the proceedings are not grounds for suggesting otherwise. There is also no suggestion that any of the grounds raised were inappropriate, or that the Appellants have unnecessarily expanded the issues or the time taken at trial. These proceedings do not present any other special circumstances justifying a departure from the usual rule.
The grounds and issues argued at trial were, in the main, intertwined, overlapping and directed at the relevant event of the correctness of the Determinations, and it would be inappropriate for the Court to now disentangle the various amounts of time spent on argument for each issue.[1]
[1]Lifestyle Investments 1 Pty Ltd v Commissioner of State Revenue (No 2) [2020] VSC 431, [6(d)].
The Appellants submit that the case of Thurin v Krongold Constructions (Aust) Pty Ltd (No 2)[2] relied upon by the Commissioner is highly distinguishable from the present proceedings. Thurin, which concerned an appeal from VCAT, involved clear and severable questions raised by different parties, and a pragmatic apportionment of costs was found to be appropriate. That case however does not support the adoption of an issue based approach to costs by default. The Appellants instead relied upon the High Court’s observation in Firebird Global Master Fund II Ltd v Republic of Nauri (No 2),[3] that there are ‘good reasons not to encourage applications regarding costs on an issue‑by‑issue basis, involving apportionments based on degrees of difficulties of issues, time taken to argue them and the like’.
[2]Thurin v Krongold Constructions (Aust) Pty Ltd (No. 2) [2022] VSCA 252, [12] (Thurin).
[3]Firebird Global Master Fund II Ltd v Republic of Nauri (No 2) (2015) 327 ALR 192, [6] (Firebird).
Commissioner’s Submissions
The basis of the Commissioner’s position is that whilst the Appellants succeeded in establishing an error of law in the Determinations in relation to s 22A of the Duties Act 2000 (Vic), they did so on one ground only, but failed on all other grounds and did not obtain the ultimate relief they sought (setting aside the assessments to taxation) and the amount of duty payable remains to be determined. The Commissioner acknowledges the general principle that costs follow the event, but submits that in exercising its discretion to award costs, the Court ‘is entitled to look to the realities of the litigation and it will attempt to do ‘substantial justice’ between the parties.[4] Where the parties have enjoyed mixed success on a multicity of issues, circumstances may exist which warrant departure from the general principle for an issue‑based approach to the award of costs.[5] The Commissioner contends that making no order for costs will achieve substantial justice between the parties because:
[4]Thurin, [12].
[5]Thurin, [12]; Lifestyle Investments 1 Pty Ltd v Commissioner of State Revenue (No 2) [2020] VSC 431, [6(d)].
(a) The issues upon which the Appellants failed were both numerous and separate and distinct from the ground upon which they succeeded.
(b) The bulk of the parties’ written and oral submissions were directed to issues other than the fixtures ground. In particular, the Appellants mainly focused on challenging the Commissioner’s application of s 22(2)–(4) of the Duties Act, which was ultimately unsuccessful.
(c) The Appellants failed to obtain the relief they sought. The Appellants’ claim was that the Assessment should be ‘set aside or altered and reduced’ by setting the dutiable value for each of the Emporium and Myer Land at $1 or less. Instead, the orders disposing of the proceedings set aside the Determinations and remitted the matters for determination according to law.
Principles
The general rule is that costs should follow the event. Absent disqualifying conduct, the successful party should recover its costs even where it has not succeeded on all heads of claim.[6] However, courts are afforded ‘significant flexibility’ in determining questions of costs.[7] As the Court of Appeal said in Thurin,[8]
Pursuant to s 24(1) of the Supreme Court Act 1986, the Court has a broad costs discretion. In exercising its discretion, the Court is entitled to look to the realities of the litigation and it will attempt to do ‘substantial justice’ between the parties. Accordingly, while the general position is that costs should follow the event, such an order may not be appropriate in every case. In particular, where there is a multiplicity of issues, and mixed success has been enjoyed by the parties, the Court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issue basis.
[6]Ritter v Godfrey [1920] 2 KB 47; Oshlack v Richmond River Council (1998) 193 CLR 72, 97–8 (McHugh J); 124 (Kirby J).
[7]Chan & Ors v Chen & Ors [2009] VSCA 233, [10].
[8]Thurin, [12] (citations omitted).
In this context, the ‘event’ is not confined to the final result of the proceedings, but may include the findings on individual issues litigated in the Court of the proceedings.[9] An ‘issue’ need not go to the entire cause of action but includes ‘any issue which has a direct and definite event in defeating the claim to judgment in whole or in part.’[10] It need not be a precise issue in a technical pleading sense, but may be any disputed question of fact or law.[11] It is not necessary as a precondition to making an apportionment of costs, that the issue concerned was raised unreasonably or inappropriately by the party. But one relevant consideration is that a party should not be dissuaded from canvassing issues which might be material to the decision in the case by the risk of costs.[12] That is to be balanced against another consideration recognised in the administration of justice, namely that, ‘if parties come to realise that they will not necessarily recover the whole of their costs [where] they have unsuccessfully raised a discrete issue, they are likely to better consider whether the raising of that issue is a justifiable course to take.’[13]
[9]Fuller v Municipal Tramways Trust [1921] SASR 109, 111.
[10]Wheeler v Riverside Coal Transport Trust [1964] Qd R 113, 117.
[11]Cretazzo v Lombardi (1975) 13 SASR 4, 12; Hughes v Western Australian Cricket Association Inc (1986) 8 ATPR 40‑748, [9].
[12]Mickleberg v Western Australia [2007] WASC 140, [43].
[13]Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266, [11] and the authorities cited there.
A court will be reluctant to apportion costs between different issues depending on success or failure on those issues where it is likely to be difficult, if not impossible, to allocate items of costs between the different issues.[14] Accordingly, the severability of the issues is an important factor.[15] The issues should be ‘sufficiently distinct’[16] or ‘separable’.[17] It is relevant to consider whether the issues on which a party failed were major issues in the action which involved substantial questions of fact and law, or substantially increased the costs of the action. It might be relevant to consider whether a party has succeeded on a ‘technicality’ but has not been ‘generally successful’.[18]
[14]Siemens WLL v BIC Contracting LLC [2024] FCA 201, [8]; PKT Technologies Pty Ltd (formerly known as Fairlight.au Pty Ltd) v Peter Vogel Instruments Pty Ltd (No 2) [2020] FCAFC 46, [14]–[15].
[15]Cretazzo v Lombardi (1975) 13 SASR 4, 16.
[16]Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 5) [2015] FCA 1310, [15].
[17]Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304, [38].
[18]Wenpac Pty Ltd v Allied Western Finance Limited (1994) 123 FLR 1, 69–70.
To order a proportion of costs in favour of one or more of the parties (or if the issues are evenly balanced, make no order to costs) has been described as ‘a pragmatic approach’.[19] The making of a single fractional cost order, which takes into account the relative success of both parties, avoids placing a burden on a taxing officer and the parties, and satellite litigation regarding the costs.[20] Apportioning a percentage is a matter of ‘impression and evaluation, rather than arithmetic precision’ and ought to have regard to the degree of success enjoyed by each party, time spent on each issue, and importance of the issue.[21] The appropriate approach will be determined by which produces a fairer result.[22]
[19]Spotless Group Limited v Premier Building and Consulting Pty Ltd and Northern Suburban Properties Pty Ltd [2008] VSCA 115, [15].
[20]Byrns v Davie [1991] 2 VR 568, 571; McFadzean v Construction Mining and Energy Union (2007) 20 VR 250, [157]–[158].
[21]Investec Bank (Aust) Ltd v Glodale Pty Ltd (No 2), [2009] VSCA 133, [7] referring to Major Engineering Pty Ltd v Helios Electroheat Pty Ltd (No 2) [2006] VSCA 114, [5].
[22]Lewis v Chief Executive Department of Justice and Community Safety (No 2) [2014] ACTSC 196, [30]–[31]; Bowen Investments Pty Ltd b Tabcorp Holding Ltd (No 2) [2008] FCAFC 107, [3]–[5].
Consideration
The Appellants relied on 16 grounds in the Appeals.[23] The Commissioner, by leave, relied on two alternative grounds in support of the Determinations (i.e. grounds additional to those upon which the Commissioner’s Delegate relied in the Determinations).
[23]The issues and grounds in each appeal were identical.
The Appellants succeeded on their ‘fixtures’ ground. The Commissioner’s Delegate determined that the value of the improvements made on the land was to be included in the unencumbered value of the dutiable property. The Appellants successfully contended that the Delegate had erred in reaching that conclusion. The Commissioner relied on an additional ground in support of the determination, contending that ‘tenant’s fixtures’ for the purposes of the relevant statutory provisions did not include the substantial improvements on the land. The Commissioner failed on that ground.
While the Appellants succeeded on only one ground of appeal,[24] their success was not a mere technicality. It was of real practical and commercial significance. The Delegate did not make a determination for the purposes of s 22A(2) of the Duties Act, failing to consider whether the tenants’ fixtures were ‘not sold or transferred to the purchaser, the transferee of the land or an associated person’, as required by s 22A of the Duties Act. The failure was found to be one involving legal error. The legal error went to the basis on which the Commissioner’s Delegate included the value of the improvements on the land in the value of the dutiable property. The inclusion of the improvements was in effect determinative of the value of the dutiable property and accordingly, of the amount of duty imposed, having regard to the value of the improvements.[25]
[24]The Appellants raised three grounds related to the treatment of ‘fixtures’. Their primary ground succeeded, and it was unnecessary to determine their alternative grounds.
[25]J[305]–[306].
The Commissioner’s proposed order (no order for costs) would not be a just outcome. It would not reflect the fact that the Appellants have had real and not merely technical success.
The Appellants, on the other hand, do not accurately describe the relationship between the issues in the case. It is true that the grounds of appeal were all directed to the correctness of the Determinations, and the Determinations were ultimately found to be incorrect. However, the appeals concerned questions of law that were on the whole, not inter‑twined, as the Reasons for Judgment demonstrate. Despite the proliferation of grounds, the issues in the appeal were conceptually and substantially grouped around five distinct issues, each of which was substantial and each of which on the Appellants’ case, would have rendered the Determinations legally erroneous were the relevant grounds upheld. The issues were:
(a) Whether the dutiable property was wrongly identified and whether s 22(2) of the Duties Act applied. Those two issues were distinct in some respects, but related. The Appellants were unsuccessful on the grounds concerning those issues.
(b) Whether the leases granted over the subject land were encumbrances within the meaning of ss 20 and 22 of the Duties Act. That issue was the subject to the Commissioner’s additional ground relied upon in support of the correctness of the Determinations. The Commissioner failed on that ground.
(c) Whether the Commissioner erred in applying s 22(3) of the Duties Act. The Appellants relied on several legal errors, and failed on each relevant ground.
(d) Whether the Determinations were vitiated by the Commissioner failing to afford the Appellants procedural fairness. The Appellants failed on that ground.
(e) Whether the value of the improvements on the land was to be included in the unencumbered value of the dutiable property for the purposes of ss 20(1)(b) and 22(1) of the Duties Act (the fixtures ground, as described above).
The Commissioner was right to say that the parties’ written and oral submissions were largely directed to issues other than the primary fixtures ground, upon which the Appellants succeeded. One of those issues was the separate issue that the Commissioner pursued (whether the leases were encumbrances), and on which the Commissioner failed.
The Appellants attempted to formulate a rule from the decision in Firebird. That was a decision that turned on its facts and did not support the rigid approach for which the Appellants contended.
In the circumstances, although the Appellants have had real success, the just outcome is that an award of costs in their favour that takes into account the fact that many grounds that were pursued were unsuccessful, and those grounds were concerned with substantial, not subsidiary questions. It is appropriate to make such an allowance notwithstanding that the Appellants have not been found to have engaged in unreasonable or inappropriate conduct. In exercising the Court’s very wide discretion the question is what a just and fair outcome requires. Weighing the competing considerations and making an impressionistic evaluation, I consider that the Appellants should have 80 percent of their costs to be taxed on a standard basis. That outcome recognises their success in having the Determinations set aside for a substantive reason, and that the distinct grounds they have otherwise pursued, have failed.
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