Appellant v Respondent

2 It is uncontroversial that s 24 of the Supreme Court Act 1986 provides that costs of and incidental to all matters are in the discretion of the Court, subject to any express provision contained in that or another Acts or in the Rules. Rule 63.02 provides that the Court's power under s 24 of the Act shall be exercised in accordance with Order 63 and r 63.31 provides that, except as provided by the Rules or other order of the Court, costs shall be taxed on a standard basis. Order 26 provides for various circumstances in respect of which costs may be taxed on an indemnity basis but, importantly, the Court retains the discretion as to the order ultimately made. As to these provisions, see generally the decision of the Court of Appeal in Cargill Australia Ltd v Viterra Malt Pty Ltd.[2]

3 The Appellant submits that the Commissioner ought to pay the costs of these proceedings on an indemnity basis whereas the Commissioner submits that the Court ought to exercise its discretion in each of the appeal proceedings to order that costs be paid by the Commissioner on a standard basis. More particularly, the Appellant relies upon its offer of compromise (OOC)[3] or, alternatively, its Calderbank letter.[4] On the basis of these offers, the Appellant submits that it should have its costs paid on an indemnity basis following those offers but on a standard basis prior to those offers being made. Additionally, the Appellant submits that if the indemnity costs order were made on the basis of the Calderbank letter, a subsidiary issue would arise as to whether the relevant date for the commencement of indemnity costs should be the date of the offer or the date of its expiry. These matters are considered in the reasons which follow.

4 The OOC and Calderbank letter, dated 27 March 2025, were served on that day. They set out materially identical terms by which the Appellant offered to settle all the proceedings, as they stood at that date. In summary, the Appellant says those terms were as follows: the Commissioner should withdraw the assessments for the 2018 to 2023 land tax years issued on 2 May 2023; the Commissioner should issue two new sets of assessments for those years, one to the Appellant as trustee of lands held under the Ross Property Trust and the other to the Appellant as trustee of lands held under the P. Colleluori Property Trust; the Appellant should pay the Commissioner $80,000, which amount the Commissioner may show as penalty tax among the assessments to be issued under paragraph 1(b), accept on account of costs, or allocate otherwise; and the offer is inclusive of costs.

5 The covering letters of the OOC[5] and Calderbank letter[6] are said to have explained the Appellant's offer to pay the Commissioner $80,000 in settlement of the proceedings exceeding the then currently assessed total penalty tax of $70,394.81, and that the offer also was that the Commissioner would bear no liability for the Appellant's legal costs which were then estimated to be around $74,000.

6 The Appellant makes reference to the extension of time for acceptance of each offer from 24 April 2025 to 12:00pm on 8 May 2025.[7] The Commissioner did not accept either offer during the extended time but late on 8 May 2025, after the offers had lapsed, the Commissioner expressed an intention to apply for leave to add further grounds in support of its Notice of Determination.[8] Leave was granted to add further grounds which, the Appellant contends, resulted in a material expansion of the scope of the proceeding.[9]

7 The Appellant contends that it is clear from a comparison of the Court's orders made 13 March 2026 as against the terms of the OOC and Calderbank letter that the orders are far more favourable to the Appellant than the result provided by the OOC and the Calderbank letter. By way of comparison it is contended as follows:[10]

(1) paragraph 1 of the orders, setting aside the notices of assessment for the 2018‑2023 land tax years, is the same as the term in paragraph 1(a) of the OOC and the term in paragraph 2(1)(i) of the Calderbank letter;

(2) paragraph 2 of the orders, to the effect that the respondent shall issue new sets of land tax assessment notices, is the same as the term in paragraph 1(b) of the OOC and the term in paragraph 2(1)(ii) of the Calderbank letter;

(3) there was no occasion to include in the OOC or Calderbank letter proposals equivalent in terms to orders 3 and 4, since those orders exclusively address the substantive legal consequence of orders 1 and 2 as regards land tax liability (and non-liability) for the land tax years 2018 to 2023. Nonetheless, penalty tax - with which order 3 deals - was dealt with by the offers. When the offers were served, the appellant was disputing an amount of penalty tax to which the respondent had assessed it. However, the appellant later accepted that penalty, subject to any reduction flowing from the Court's decision on primary tax. As referred to above, the offers provided for the appellant to pay $80,000 to the respondent, a sum that exceeded the total amount of penalty tax then owing. Order 3 produces a result markedly more favourable than that to the appellant, by further reducing the applicable penalty tax.

Thus it is said by the Appellant that the 13 March orders are no less favourable to the Appellant than its OOC and Calderbank letter, which the Commissioner rejected. To the contrary, it is said, they are more favourable.

8 The OOC was made in accordance with ord 26 of the Rules, with particular reference being made to rr 26.02 and 26.03. The Commissioner did not accept the OOC within the period in which it was open in circumstances, where the Appellant contends, that the judgment of the Court is no less favourable to the Appellant than the terms of the OOC. In such circumstances, it is contended that r 26.08(2) operates to bring about the result that the Appellant is entitled to an order that its costs before 11:00am on the second business day after the offer was served (that is, 31 March 2025) are to be taxed on the standard basis and thereafter on an indemnity basis.

9 As the Appellant observes, in its letter of 5 March 2026,[11] the Commissioner contended that it was reasonable to refuse the OOC and that the Court should 'otherwise order' under r 26.08(2), so as to negate the Appellant's prima facie right to indemnity costs from 31 March 2025. The Appellant submits that any such contention ought not be accepted as the Commissioner has failed to discharge a 'heavy' burden to satisfy the Court to 'otherwise order'.[12] More particularly, the Appellant says that the Commissioner's sole stated argument in its 5 March letter was that the OOC had asserted 'only' that a trust is not a person and hence cannot be a joint owner under s 38 of the Land Tax Act 2005 (the Act), whereas the Commissioner subsequently obtained leave to rely on further grounds 'in the alternative to [reliance] on s 38' such that thereafter 'the appeal was almost entirely conducted on a basis very different to that contemplated by the [OOC]'.[13]

10 The Appellant contends that the Commissioner's argument fails to provide a basis for the Court to 'otherwise order' under r 26.08(2) submitting that it, rather, does the reverse. Thus, it is said that by the OOC, the Appellant offered a complete settlement of the proceedings as then constituted in circumstances where the Commissioner's only ground at that time was reliance on s 38 of the Act. It is said the OOC of course 'only' addressed that provision. The fact that thereafter the Commissioner substantially expanded the scope of the proceedings, thereby materially increasing their cost to the Appellant, by introducing a number of new grounds of objection, all of which were rejected by the Court at trial, together with the original s 38 ground, cannot possibly, it is said, operate to preclude the OOC from having its prima facie effect under the Rules. To the contrary, it is contended that this circumstance reinforces that the OOC should have that effect and that it would be perverse for the Commissioner to suggest that its position as to costs should be improved by virtue of it having introduced a number of, said to be, unmeritorious grounds into the proceedings following the rejection of the OOC.

11 The Appellant also submits that, in the present context, it is relevant that the Commissioner, as an emanation of the State, is responsible for the administration of the Act and, it is said, is taken to know the law and yet advanced numerous grounds in defence of the assessments all of which foundered on well-established methods of statutory construction and orthodox general law doctrines. The Appellant emphasised that as at the date of the OOC, the Commissioner was relying on only one ground, the s 38 point, which, it is said, was plainly bad; indeed, the Commissioner's own website was expressing a contrary position to the public.[14] On this ground, the Appellant succeeded at trial on the basis on which it asserted in its offers that it would succeed, as well as succeeding on all the other grounds later introduced by the Commissioner.

12 As the Appellant submits, the central question with respect to the Calderbank letter is whether it was reasonable for the Commissioner not to accept the offer.[15] The Appellant submits that it was not. More particularly, it is that in the circumstances of this matter, the relevant considerations are as follows.[16] The offer was made months in advance of the trial and was initially open for four weeks, itself said to be a reasonable time, but the Appellant extended that time by two weeks to accommodate the Commissioner's request for further time to obtain instructions and legal advice.[17] This, it is said, was more than ample time for the Commissioner to assess the offer.[18] The Appellant contends that the extent of the compromise embodied in the offer was substantial in that it was to pay an amount well above the penalty tax that in law was payable and the Commissioner was to bear no responsibility for the Appellant's then costs. Moreover, it is said that the offer was expressed in straightforward, clear language and it foreshadowed that the Appellant would rely on the offer in accordance with Calderbank principles.[19] The Appellant also relies on the particular matters raised, as set out previous, with respect to the OOC.

13 Concluding, the Appellant submits that the matters to which reference has been made, even if the OOC did not have such effect, that this is a proper case for the Court to order, based upon the Calderbank letter, that the Commissioner pay the Appellant's costs on an indemnity basis from the relevant date. It is said, properly understood, that date is itself an aspect of the Court's discretion[20] but that this discretion should be exercised in favour of the date being the date of the offer, namely 27 March 2025.[21]

14 The Commissioner submits that in determining the proper application of r 26.08, three questions arise: whether the offer was a genuine compromise, whether the judgment obtained is no less favourable than the offer; and whether the Court should order 'otherwise' than in the terms set out in r 26.08.[22]

15 As discussed further in the reasons which follow with respect to the Calderbank letter, the Commissioner contends that the offers were not a compromise in respect of the further grounds and so it follows that acceptance of those offers would not have brought the main dispute between the parties in relation to those grounds to an end.[23] More particularly, it is said that this is especially so in respect of the 2024 and 2025 assessments in respect of which the further grounds would necessarily have been agitated.[24] As such, it is said that the resolution of the appeals on the basis proposed in the offers would have resulted in additional expense, inefficiencies and potentially inconsistent outcomes associated with the necessary resolution of the further grounds. Further, the judgment obtained related in the main to the further grounds rather than to the ground the subject of the OOC. In those circumstances, it is submitted that irrespective of how the burden imposed on the Commissioner to demonstrate why the Court should 'otherwise order' is expressed, for the reasons it advanced in its submissions, he has discharged that burden in this case. It is accepted by the Commissioner that the onus is on him to put forward proper reasons for the Court to rebut the presumption in r 26.08 in favour of indemnity costs.[25]

16 In relation to r 26.08, the Commissioner contends that the Appellant, in its submissions with respect to the discharge of a 'heavy' burden to satisfy the Court that it ought 'otherwise order',[26] places a gloss on the meaning of that rule which is not supported by the text of the rule. It is said that while that and like expressions are not uncommonly referred to in the authorities, they should not be considered to limit the Court's discretion to 'otherwise order', which is 'unfettered'.[27] Such expressions are, it is said, perhaps best understood as explaining that the Court will exercise caution in departing from the prima facie costs consequences of the rule and will need proper reasons and a principled basis to do so.[28] The reasonableness of the rejection of the offer has been described as 'a weighty consideration'[29] albeit not determinative.[30] Thus it is said that in considering 'reasonableness', the matters identified in Hazeldene's Chicken Farm Pty Ltd v Workcover Authority (Vic) (No 2)[31] ought be taken to apply.[32] Moreover it is said that whether the Court will 'otherwise' order depends on whether doing so advances the purpose of ord 26.[33]

17 Concluding, on this point it is said that applying these principles there are proper reasons and a principled basis for the Court to 'otherwise' order in the unique circumstances referred to by the Commissioner with respect to the Calderbank letter. As to the question of reasonableness, the Commissioner's rejection of the offer was said to be reasonable for the reasons put with respect to the Calderbank letter. Further, to otherwise order in this case will advance the purposes of ord 26 for those reasons as well as on the basis of the matters set out previously in relation to the OOC. Thus, it is said that in the circumstances, indemnity costs are not appropriate because, from the time of the rejection of the OOC, the cause of the continued litigation was the Commissioner's pursuit of the further grounds which did not turn on the rejection of the OOC.[34]

18 As indicated previously, the principles to be applied with respect to the exercise of the Court's discretion to award costs on an indemnity basis following a Calderbank letter are common ground. The Commissioner makes reference to a number of particular matters said to demonstrate it was reasonable for him to refuse the Calderbank offer. The first reason said to demonstrate this, which raises a number of particular matters is put as follows:[35]

First, the reason asserted by the appellant in its 27 March 2025 Calderbank offer, as a basis for the Commissioner to settle the appeals at that stage, was that a trust cannot be a 'person' and so cannot be a 'joint owner' for the purposes of s 38 of the Land Tax Act 2005 (LTA). In other words, the appellant's contention was that the Commissioner's 'joint owners ground' had 'no real prospect of success'. On 8 May 2025, the Commissioner rejected the Calderbank offer (and the offer of compromise, discussed below) noting that the Commissioner proposed to make an application under s 109 of the Taxation Administration Act 1997 seeking leave to rely on new grounds (further grounds) in the appeal. On 8 May 2025, the Commissioner also provided the appellant with an open letter setting out the basis of the application to rely on the further grounds.

The Commissioner's application to rely on the further grounds in support of the Commissioner's case was contested by the appellant. The Commissioner submitted in the context of that application (and maintains) that the Court's determination of the Commissioner's further grounds was important in the context of each of the appeals, the challenge to the 2024 and 2025 assessments (at that time held in abeyance) and to the administration of the LTA in relation to taxable land held on trust, noting that it raised important questions of principle the resolution of which would inform the Commissioner's future administration of that Act.

The Commissioner was granted leave to rely on the further grounds on the basis that they were appropriate grounds to raise in this matter: R. C. Land Management v Commissioner of State Revenue [2025] VSC 452 [Orders made 3 July 2025]. While the appellant was successful in resisting the Commissioner's further grounds his Honour's reasons, both on the leave application and on the appeal, demonstrate that the issues raised by those grounds were 'matters of importance, as well as of substance'...

19 The second reason said to demonstrate the reasonableness of the Commissioner's rejection is said to be informed by, among other things, the strength and weakness of the claim or defence. The Commissioner submits that he could not have assessed the 'prospects of success in the proceedings'[36] when he rejected the Calderbank offer because the Commissioner did not know whether he would be granted leave to rely upon the proposed further grounds in the appeals.[37] Thus, it is said that as at 8 May 2025, there were reasonable grounds for the Commissioner's rejection of the Calderbank offer. With respect to the further ground, the Commissioner submits, in this context:[38]

Further, it is significant that the appellant made no without prejudice offer in respect of the Commissioner's further grounds during the period between the Court's decision to allow those grounds in July 2025 and the hearing of the appeals in December 2025, on the basis that they were 'unmeritorious' (ACS [15]) or otherwise. And the appeals were almost entirely contested on the further grounds, the joint owner's ground being the last ground on which the Commissioner relied and only in circumstances where the Commissioner's further grounds were not accepted. Further, the extensive evidence filed in the appeals was directed at establishing or opposing the further grounds. Thus, it would be wrong in principle and in fact for the Court to order indemnity costs as if the further grounds had been the subject of the offers made by the appellant in its correspondence of 27 March 2025 ...

20 In my view the Appellant's claim for indemnity costs, whether on the basis of the OOC or the Calderbank letter, should be rejected on the basis of the matters relied upon and the submissions of the Commissioner. More particularly, the focus on the state of the proceedings should, in my view, be following the time at which the Court granted leave to rely upon the proposed further grounds in the appeals; especially as the Commissioner gave very detailed notice of the proposed further grounds relatively contemporaneously with the last date for acceptance of the Appellant's offers. It is true that the Commissioner relied upon s 38 of the Act and that reliance ultimately failed, but in the context of consideration of the cost consequences of an offer of compromise or a Calderbank offer, the position with respect to the further grounds is critically more significant. Once leave had been granted to the Commissioner to rely upon the proposed further grounds in the appeals, the steps previously taken to resolve the proceedings were of little consequences and would, at best, assume some 'apportionment' process with respect to the offers to be undertaken. However, as the Appellant was on notice of the proposed further grounds only shortly after the close of its offers, I am of the view that apportionment issues do not arise. Consequently, it does, as contended by the Commissioner, become significant that the Appellant made no without prejudice offer, in whatever form, in respect of the further grounds during the period between the decision to allow these grounds in July 2025 and the final hearing on the basis that they were 'unmeritorious' or otherwise. Moreover, as the Commissioner contends, the appeals were almost entirely contested on the further grounds.

21 A further, more general, consideration is that, as the Commissioner submitted, the determination of the further grounds are important in the context of each of the appeals and raise important questions of principle, the resolution of which would inform the Commissioner's further administration of the Act. This is not to suggest that informing government entities, such as the Commissioner, on the interpretation of legislation which that entity manages and might seek to have clarified by it, should generally be borne by private litigants. Regard must be had to the intrinsically complex nature of the Act and the circumstances which it seeks to regulate. In my view, the failure of the Commissioner in these proceedings for the reasons indicated in the Reasons does not detract from the Commissioner's submission that resolution of the questions raised was important for future administration of the Act. It could not be said, in the present context that the matters raised by the Commissioner, including the further grounds, were hopeless and thus matters that should not have been raised and argued in these proceedings.[39]

22 Moreover, having regard to these considerations and the other matters to which reference has been made, there is, in my view, no basis for any suggestion that there has been a failure on the Commissioner's part to observe and comply with the Victorian Model Litigant Guidelines.

23 For the preceding reasons, I am of the opinion that the Court ought not exercise its discretion to award costs on an indemnity basis from 27 March 2025 or at all. Rather, for the preceding reasons, I will order that in each of the six appeals the Commissioner pay the Appellant's costs on a standard basis, to be taxed in default of agreement.

[1] R.C. Land Management Pty Ltd v Commissioner of State Revenue [2026] VSC 49 (Reasons), [166].

[2] [2023] VSCA 301, [36]-[40] (Sifris, Walker and Whelan JJA).

[3] Offer of Compromise (27 March 2025) contained in Exhibit 'RPL-2' to the affidavit of Rebecca Patricia Laban (17 March 2026) (the Laban Affidavit) at pp 7-8.

[4] Letter dated 27 March 2025 from the Appellant's solicitors, Gadens Lawyers to Messrs Walker and Ou‑Young, solicitors, State Revenue Office (Laban Affidavit, Exhibit RPL-2, pp 2-4).

[5] Laban Affidavit, Exhibit RPL-2, p 5 [3].

[6] Laban Affidavit, Exhibit RPL-2, p 2 [3].

[9] Reasons, [4]; R.C. Land Management v Commissioner of State Revenue [2025] VSC 452, [36].

[10] Appellant's Written Submissions on Costs (20 March 2026), [9] (emphasis in original, citations omitted).

[11] Laban Affidavit, Exhibit RPL-2, p 31.

[12] Nakos v Sedaris [2016] VSC 179, [18] (Zammit J).

[13] Laban Affidavit, Exhibit RPL-2, pp 31-2.

[15] Hazeldene's Chicken Farm Pty Ltd v Workcover Authority (Vic) (No 2) (2005) 13 VR 435, [23], [25].

[16] See Hazeldene's Chicken Farm Pty Ltd v Workcover Authority (Vic) (No 2) (2005) 13 VR 435, [25].

[17] Laban Affidavit, Exhibit RPL-2, pp 9, 10.

[18] Indeed, this was sufficient time for the Commissioner, by the end of the offer period, to have formulated its new grounds: see Laban Affidavit, Exhibit RPL-2, pp 23-24.

[19] Laban Affidavit, Exhibit RPL-2, p 3 [6].

[20] Auswest Timbers v Secretary to Department of Sustainability & Environment (No 2) [2010] VSC 613, [16] ('in exercising this discretion'). That explains why 'the practice of the courts seems to vary' in this regard: Love v Victoria (No 2) [2009] VSC 531, [63]. Compare Challenger Property Asset Management Pty Ltd v Stonnington City Council (No 2) [2012] VSC 67, [6] (where the parties agreed on the offer date as the relevant date).

[21] The Appellant says that if the Court does not accept this, the date would be 8 May 2025.

[22] Stevens v Spotless Management Services Pty Ltd (No 2) [2016] VSCA 311, [22] (Kyrou and McLeish JJA, Elliott AJA).

[23] Cf Grbavac v Hart [1996] VSC 37; [1997] 1 VR 154, 164.5 (Hayne JA).

[24] 8 May 2025 letter from the SRO to Gadens at [14] states that the Commissioner will be relying on the further grounds in relation to the 2024 and 2025 assessments: Laban Affidavit, Exhibit RPL-2, p 21.

[25] IFTC Broking Services v Federal Commissioner of Taxation [2010] FCAFC 31; (2010) 268 ALR 1, 4-5 [9] (Stone, Edmonds and Jagot JJ); Stevens v Spotless Management Services Pty Ltd (No 2) [2016] VSCA 311, [22] (Kyrou and McLeish JJA, Elliott AJA).

[27] Nakos v Serdaris [2016] VSC 179, [18], [39] (Zammit J).

[28] Stevens v Spotless Management Services Pty Ltd (No 2) [2016] VSCA 311, [31] (Kyrou and McLeish JJA, Elliott AJA), quoting Nakos v Serdaris [2016] VSC 179.

[29] Nakos v Serdaris [2016] VSC 179, [19] (Zammit J) citing Dal Pont, The Law of Costs (Lexis Nexis, 3rd ed, 2013).

[30] Stevens v Spotless Management Services Pty Ltd (No 2) [2016] VSCA 311, [26] (Kyrou and McLeish JJA, Elliott AJA) referring to Nakos v Serdaris [2016] VSC 179 and IFTC Broking Services v Federal Commissioner of Taxation [2010] FCAFC 31; (2010) 268 ALR 1.

[32] Peers v Medical Board of Australia (No 2) [2026] VSCA 38, [20] (Donoghue and Orr JJA) in respect of 'reasonableness' in the context of r 26.12.

[33] Stevens v Spotless Management Services Pty Ltd (No 2) [2016] VSCA 311, [19] (Kyrou and McLeish JJA, Elliott AJA), citing Grbavac v Hart [1996] VSC 37; [1997] 1 VR 154, 164-5 (Hayne JA) as to those purposes.

[34] See Grbavac v Hart [1996] VSC 37; [1997] 1 VR 154, 164.45 (Hayne J) as to the third of those purposes.

[35] Commissioner's Written Submissions on Costs (25 March 2026), [5]-[7] (citations omitted).

[36] See, e.g. Secretary to the Department of Business and Innovation v Murdesk Investments Pty Ltd (No 2) [2012] VSC 586, [38]-[44] (Emerton J).

[37] Cf Appellant's Written Submissions on Costs (20 March 2026), [17].

[38] Commissioner's Written Submissions on Costs (25 March 2026), [10] (citations omitted).

[39] See R.C. Land Management v Commissioner of State Revenue [2025] VSC 452 (Applications on Summons in these proceedings).