Appellants v Respondent

1 The Appellant taxpayers own land that the Respondent Commissioner of State Revenue assessed to land tax for the 2016 land tax year. The Appellants brought this appeal under s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (the VCAT Act), against orders made by VCAT upholding the Commissioner's assessment. The appeal concerned the construction and application of s 77 of the Land Tax Act 2005 (Vic) (the Land Tax Act).[1]

2 The Appellants contended that their land was wholly exempt from land tax. The Commissioner had determined it to be partly exempt.

3 On 30 June 2020 I delivered judgment on the appeal: Lifestyle Investments 1 Pty Ltd v Commissioner of State Revenue [2020] VSC 397 (Lifestyle No. 1). I indicated that subject to hearing the parties on the appropriate form of order I would give effect to my reasons for judgment by ordering that leave to appeal be granted, the appeal be allowed, the Tribunal's orders be set aside and the matter be remitted for rehearing in accordance with law.

4 There were two issues in contention: whether the Tribunal is to be constituted for the re-hearing by the same member who made the original order, and the appropriate order as to costs. On the question of re-hearing the parties both submitted that the matter should be remitted for rehearing with the hearing of further evidence. The Commissioner contended that the Tribunal should be constituted by the original member (Member Tang), and the Appellants contented that it ought be constituted by a different member. The Appellants sought that the Commissioner pay their costs of the proceeding and the Commissioner contended that there should be no order as to costs.

5 On hearing the parties I made the following orders, on 14 July 2020:

1. Leave to appeal is granted;

2. The appeal is allowed;

3. The orders of the Tribunal made on 20 June 2019 as amended on 10 July 2019 are set aside and the matter is remitted for re-hearing by the Tribunal, constituted by Member Tang, in accordance with law and with the hearing of further evidence;

4. The respondent pay the appellants' costs of this proceeding.

6 The principles governing the question of costs in this proceeding can be briefly stated:

(a) The power to award costs is in the Court's discretion.[2] The discretion must be exercised judicially and in accordance with principle.[3]

(b) The ordinary rule is that costs follow the event. That rule is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. It recognises that if the litigation had not been brought or defended by the unsuccessful party, the successful party would not have incurred the expense which it did.[4] The High Court has recently said that this was "one of the most, if not the most, important" principles by reference to which the discretion to award costs is to be exercised.[5]

(c) The ordinary rule may be modified or displaced where conduct on the part of the successful party in relation to the litigation would justify a different outcome.[6]

(d) The fact that not all of the successful party's arguments were accepted by the Court does not of itself require a departure from the ordinary rule or justify the adoption of an "issue-based" approach to the award of costs. The existence of clearly distinct and severable issues on which the successful party has failed might well justify a departure from the ordinary rule. In such a case it would be necessary to weigh the significance of the contested issues in proportion to the proceeding as a whole and, where relevant, the conduct of the successful litigant, in the context of case management principles.[7] However, a court should not too readily disallow costs simply because a party has failed on an issue, unless the issue is quite separate and distinct or unless there is "some element of unreasonableness or inappropriate conduct in relation to that issue".[8] As Refshauge J said in Lewis v Chief Commissioner -

[i]t is not appropriate for the court to comb through the proceedings to separate out issues on which the successful party has not been successful so as, in some way, to moderate the usual order for costs.[9]

The fact that a party has failed on an issue does not of itself mean that the party has acted inappropriately or unreasonably.[10] Hence, while there is a discretion to apportion costs, other than in the clearest of cases, the successful party should not be deprived of its costs.[11]

(e) There is no general rule that the question of costs should be reserved until the redetermination of a matter remitted for rehearing. While each case must be decided on its own facts, it is relevant that, irrespective of the conclusion that a tribunal might make on rehearing, it remains the case that in order to achieve the remitter, the successful party has been required to litigate and incur the costs of doing so.[12]

(f) The position in relation to appeals under s 148 of the VCAT Act does not require the application of any different principle.[13]

7 By their notice of appeal the Appellants sought that the order of VCAT be set aside and in its place it be ordered that the relevant Land Tax Assessment Notice be varied such that the Appellants' lands be wholly exempt from land tax. In the alternative they sought an order that VCAT's orders be set aside and the matter be remitted to the Tribunal for rehearing. The Appellants have failed in their quest to obtain the relief primarily sought, but have succeeded in obtaining an order that the appeal be allowed and the matter be remitted for re-determination. It is necessary to recount briefly how that result came about.

8 The Appellants contended that VCAT did not perform the task required of it; it did not identify the correct legal test in that it failed to address what was required for use of land as a registered caravan park as defined in s 77 of the Land Tax Act.[14] I accepted that proposition.[15]

9 However, I rejected the Appellants' primary case as to the construction of s 77(1).[16] I determined that, on a proper construction of the statute, it was open to VCAT to reject the Appellants' primary case.[17]

10 I also rejected the Appellants' construction of s 77(3) and their contention that VCAT wrongly decided that that provision permitted the Commissioner to apportion land comprising or within the registered caravan park, rather than to apportion land that is in part used as a registered caravan park and in part used for another purpose. I considered that VCAT correctly construed s 77(3)[18] but that having done so, VCAT did not correctly construe and apply the whole of s 77, because it did not properly address the criterion for exemption from land tax contained in s 77(1).[19] I held that the Tribunal's application of s 77(3) did not resolve the Appellants' alternative case.[20]

11 I also determined that where the statutory construction task had not been completed and factual findings that would have been relevant on a proper construction of the Land Tax Act were not made, it was not possible to decide that, on undisputed evidence, there was only one right answer open to the Tribunal.[21] The Appellants had rightly submitted on the appeal that in the event that the statutory construction task had not been completed, and where I could not find that only one right answer was open to the Tribunal, that the matter should be remitted. I did not consider that there were sufficient uncontested factual findings for me to resolve the appeal.[22] Accordingly, a remitter was appropriate.[23]

12 The nature of an appeal on a question of law under s 148 is supervisory and analogous to judicial review.[24] The Appellants submitted that it is commonplace in many judicial review proceedings and appeals from tribunal decisions that a party's arguments may be accepted in part and rejected in part, and that that consideration speaks against a close dissection of the result in circumstances like the present. There is force in that submission.

13 Although the Appellants have not been wholly successful, they have succeeded in establishing that the Tribunal erred in failing to complete its statutory task, and in obtaining an order that the Tribunal's orders be set aside and the matter be remitted for rehearing. That is the relevant "event". As the Appellants put it, it was necessary in order for the Appellants to have the opportunity to have the proceeding determined in accordance with the law, to bring this appeal. Had the Appellants not brought their appeal they would not have incurred the costs they did. Prima facie, fairness dictates that they should have their costs.

14 There are no countervailing considerations sufficient to warrant a departure from the ordinary rule.

15 There is no disentitling conduct on the part of the Appellants and none was suggested. The issues on the appeal were properly raised.

16 The Commissioner submitted that while he should not have his costs, an order entitling the Appellants to their costs would be too generous in the circumstances and that no order as to costs would be a fair result. The Commissioner made two points in support of that contention.

17 First, it was submitted that the Appellants had succeeded on a case that they had not really run. I accept that the outcome of the Appeal was not what the Appellants primarily sought, but it remains the fact that the Appellants did establish legal error in the Tribunal. They did so against the opposition of the Commissioner, and the appropriate consequence in the circumstances was a remitter. The orders I made were squarely sought by the Appellants' notice of appeal.

18 Second, the Commissioner submitted that the Appellants have been granted an indulgence in that they will have a "second chance" to perfect their evidence. That should be offset as it were, by my not requiring the Commissioner to fund the cost of the indulgence. That is not an apt characterisation of the result, or the steps that led to it. Although it is true that the taxpayer bore the onus of establishing the facts that would entitle it to an exemption,[25] it remains the fact that, as I held in Lifestyle No. 1, factual findings that would have been relevant on a proper construction of s 77 were not made.[26] As it happens, the absence of factual findings occurred in circumstances where there appeared to be evidence going to relevant subject matter[27] but where the parties had conducted the case before VCAT on the basis that there was limited need for factual findings. That approach ultimately did not assist the Tribunal.[28] In any case, the Commissioner's position is that the correct outcome, so that the matter may now be determined in accordance with the law, is an order for re-hearing with further evidence. The Commissioner expressly submitted that any other course (say, dismissing the appeal) would lead to the undesirable result of the Commissioner succeeding, but on an erroneous construction of s 77.[29] Furthermore, as the Appellants pointed out, an order for re-hearing with further evidence operates to the benefit of both parties.

19 The Appellants submitted that the Commissioner's approach was in substance, an application for costs apportionment by another name. I am inclined to agree. I accept the Appellants' submission that the issues concerning the construction of s 77 and the matters advanced on the Appellants' primary and alternative cases were not severable in the sense required for an issue based costs order, although I note for completeness that the Appellants' submissions, in my view, overstate the inter-connectedness of the primary and alternative cases.[30]

Constitution of the Tribunal

20 As Kyrou J said Vegco Pty Ltd v Gibbons:[31]

If orders are made by this Court as a matter of course requiring decisions to be remade by a differently constituted primary decision-maker, this may have serious resourcing implications for primary decision-makers and add to the costs and delays of the decision-making process. For the Court to be persuaded to order remittal to a differently constituted primary decision-maker, good reason for doing so, based on established principles, must be shown by the party seeking such an order. The guiding principle is that remittal will be to a differently constituted primary decision-maker where there is some feature of the conduct or reasons for decision which would render it unfair to the successful party or give the appearance of unfairness to that party (whether arising from strongly expressed views on key issues, adverse findings on the credit of witnesses, apprehended bias or otherwise) if the matter were remitted to the same decision-maker or where it would be impracticable for the same decision-maker to re-determine the matter.

21 Here, there is no feature of the conduct of the matter below or the reasons for decision that would make it unfair to the Appellants or give the appearance of unfairness to them. As the Appellants' counsel properly accepted, there were neither credit findings nor any finding that would lead to a question of pre-judgment. As I observed in Lifestyle No. 1, the factual findings were scant. That approach was encouraged by the parties.

22 As the Commissioner submitted, the only thing that might be said against a remitter to the same Member in this case is that the Member has been found to have made an error of law (here, as it happens, where the provision in question had never before been construed by a Court). However, as the Commissioner submitted, that feature is always present where there is a remitter to the Tribunal. In this case, it is irrelevant to the question in issue.

23 It is appropriate for those reasons that the matter be re-heard by the same Member.

[1] Section 77 of the Land Tax Act provides as follows:

(1) Land is exempt land if the Commissioner determines that it is used as a registered caravan park.

(2) To obtain an exemption from land tax under this section, the owner of the land must -

(a) apply to the Commissioner for the exemption; and

(b) give the Commissioner any information the Commissioner requests for the purpose of enabling the Commissioner to determine whether the land is exempt under this section.

(3) If the Commissioner is satisfied that only a part of land is used as a registered caravan park -

(a) land tax is assessable on the remaining part of the land, unless another exemption applies to that part; and

(b) section 22 applies, if necessary, for that purpose.

registered caravan park means a caravan park within the meaning of the Residential Tenancies Act 1997 that is registered in accordance with regulations made under section 515 of that Act.

[2] Supreme Court Act 1986 (Vic) s 24.

[3] Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164 (Sangare), 172-3 [24].

[4] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 96-97 [66]-[67].

[7] See Zentai v Honourable Brendan O'Connor (No 4) [2010] FCA 1385, [72].

[8] See Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602, [54].

[9] Lewis v Chief Executive Department of Justice and Community Safety (No 2) [2014] ACTSC 196 (Lewis), [26].

[10] BHP Billiton Iron Ore Pty Ltd v National Competition Council (No 2) [2007] FCA 557, [21].

[11] Lewis, [27]; Orrong Strategies Pty Ltd v Village Roadshow Ltd (No 2) [2007] VSC 205, [14].

[12] See for example, CIC Allianz Insurance Ltd v Pillay (No 2) [2018] NSWSC 305, [3]-[5].

[13] See McDonald v Irungu [2015] VSC 689, [4], [22]-[31].

[14] Lifestyle Investments 1 Pty Ltd v Commissioner of State Revenue [2020] VSC 397 (Lifestyle No. 1), [101].

[15] Lifestyle No. 1, [110]-[117].

[17] Lifestyle No. 1, [119]-[125].

[18] Lifestyle No. 1, [87]-[92], [107],[128].

[19] Lifestyle No. 1, [109]-[110].

[20] Lifestyle No. 1, [128]-[130].

[22] Lifestyle No. 1, [131]-[151].

[23] Lifestyle No. 1, [152]-[155].

[24] See Osland v Secretary to the Department of Justice [2010] HCA 24; (2010) 241 CLR 320, 331-2 [18].

[25] Taxation Administration Act 1997 (Vic), s 110.

[26] Lifestyle No. 1, [133]-[151].

[27] Lifestyle No. 1, [132]-[145].

[28] Lifestyle No. 1, [147], [148].

[29] Respondent's Submissions on Final Orders, [6].

[30] In resisting an anticipated order for issue-based costs the Appellants submitted that their grounds of appeal and submissions were overlapping, that they had not submitted that registration of itself was sufficient to satisfy the requirements of the exemption under s 77, and that the differences between the questions raised by their notice of appeal should be read in light of concessions made that something more than the fact of registration was required in order to establish the requisite "use" of land for the purposes of the exemption. I accept that the grounds were overlapping but otherwise, that characterisation of the Appellants' case is inaccurate. In the course of oral submission the Appellants' Senior Counsel said that the Appellants did leave open the construction that registration itself was sufficient to establish use and that, "if you've got the registration, then you get the exemption accordingly" (transcript, 20 November 2019, p 17) and that that was the Appellant's primary submission (transcript, 20 November 2019, p 11). The primary submission was plainly made in the Appellants' argument analysed in Lifestyle No. 1 at [29]-[31], [74]-[86], and was reflected in the nomination of questions 2 and 3 in the Appellants' notice of appeal. However, as the Appellants accepted, their case entailed what amounted to 'fence-sitting' on the question whether registration itself amounted to use (Lifestyle No. 1 at [32]-[35]). The Appellants also put that registration was not "necessarily" equivalent to use (transcript, 20 November 2019, p 15) and that in some circumstances land might be registered but not used (transcript, 20 November 2019, p 124).

[31] [2008] VSC 363, [33].