Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation

1. The appeal be dismissed.
2. The applicant pay the respondent's costs of the appeal, as agreed or assessed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT: 1 On 10 August 2018, the Court published reasons for judgment in these appeals. There is no issue between the parties as to the form of orders to give effect to the Court's reasons. There is an issue, however, in relation to costs. These reasons should be read together with the reasons published on 10 August 2018. We adopt the abbreviations used in those reasons. 2 The parties have each filed written submissions on costs. In circumstances where the Commissioner's submissions approached the matter on the basis that one party would pay a percentage of the other party's costs, we gave Aussiegolfa the opportunity to file a submission in reply, addressing the question of costs if the Court were minded to adopt a percentage-based approach. Aussiegolfa filed a submission approaching the matter on the basis of a percentage. 3 The parties' positions in relation to costs may be summarised as follows. 4 In its initial submissions on costs, Aussiegolfa sought the following orders: (a) In relation to the Federal Court Appeal, that: Aussiegolfa pay part of the Commissioner's costs, namely the costs proportionate to the hearing and determination of the "in-house asset" issue; and the Commissioner pay part of Aussiegolfa's costs, namely the costs proportionate to the hearing and determination of the "sole purpose" issue. (In effect, Aussiegolfa proposed that costs follow the event in relation to each issue in the Federal Court Appeal.) Comparable orders were sought in relation to the proceeding at first instance. (b) In relation to the AAT Appeal, that the Commissioner pay Aussiegolfa's costs (on the basis that costs would follow the event). 5 The Commissioner sought the following costs orders in his submissions: (a) In relation to the Federal Court Appeal, that Aussiegolfa pay 50 per cent of the Commissioner's costs of and incidental to the appeal. A comparable order was sought in relation to the proceeding at first instance. (b) In relation to the AAT Appeal, that the parties bear their own costs. 6 In its further submissions (predicated on the Court adopting a percentage-based approach), Aussiegolfa sought the following orders in relation to the Federal Court Appeal: (a) the Commissioner pay 40 per cent of Aussiegolfa's costs of the appeal and the hearing at first instance; and (b) Aussiegolfa pay 60 per cent of the Commissioner's costs of the appeal and the hearing at first instance. The rationale for these proposed orders was that (a) related to the sole purpose issue (in respect of which Aussiegolfa was successful), while (b) related to the in-house asset issue (in respect of which the Commissioner was successful). 7 We will deal first with the Federal Court Appeal and then with the AAT Appeal. 8 In relation to the Federal Court Appeal, it is apparent that both parties accept that an issues-based approach is appropriate. It is well established that it is open to the Court to adopt such an approach: see, eg, Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [3]-[5]; Queensland North Australia Pty Ltd v Takeovers Panel (No 2) [2015] FCAFC 128; (2015) 236 FCR 370 at [11]-[18]. We agree that an issues-based approach is appropriate in the circumstances of this case, where the proceeding, both at first instance and on appeal, involved two discrete issues, namely the in-house asset issue and the sole purpose issue, and each party was successful in relation to one issue. At first instance, Aussiegolfa sought separate declarations in relation to each issue. On the basis of the Full Court's reasons, Aussiegolfa is entitled to a declaration in relation to the sole purpose issue, but not to the declarations it sought in relation to the in-house asset issue. 9 The approach taken in Aussiegolfa's initial submissions involves costs following the event in relation to each issue. The difficulty with this approach is that it would be costly and time-consuming to allocate costs as between the two issues for each item of legal work. In its further submissions, Aussiegolfa proposed orders expressed in percentages, but still involving the payment of costs by each party to the other. Unless there were agreement between the parties on the amount of their costs, this would require both parties to prepare a bill of costs and for both bills to be the subject of taxation. In contrast, the Commissioner's proposed orders involve one party paying a percentage of the other party's costs. This has the considerable advantage in terms of cost and time that only one party's costs need to be taxed. We consider this approach to be preferable in the circumstances. 10 The question, then, is the appropriate costs order, taking into account the time and expense likely expended in relation to each issue and the outcome in relation to each issue. 11 The in-house asset issue occupied substantially more time than the sole purpose issue on the hearing of the appeal and in the parties' written submissions. This is reflected in the Court's reasons. We note that, in addition to the parts of the reasons of Moshinsky J and Steward J that directly addressed the in-house asset issue, a considerable part of the "background facts" section at [18]-[98] of the reasons of Moshinsky J was relevant to the in-house asset issue rather than the sole purpose issue. In these circumstances, in our view, the appropriate order in respect of the Federal Court Appeal is that Aussiegolfa pay 40 per cent of the Commissioner's costs of the appeal. 12 In relation to the proceeding at first instance, it would appear that the relative time and expense referable to each issue were similar to the relative time and expense referable to each issue on the appeal. One difference is that it would appear that Aussiegolfa prepared most of the evidence and its costs were therefore probably higher than those of the Commissioner. However, the substantial part of the evidentiary material related to the in-house asset issue rather than the sole purpose issue, which was dealt with relatively briefly. Accordingly, we consider it appropriate to make a comparable costs order with respect to the proceeding at first instance, namely that Aussiegolfa pay 40 per cent of the Commissioner's costs. 13 It is true that, in respect of both the appeal and the proceeding at first instance, Aussiegolfa was the moving party and achieved some measure of success. Nevertheless, in the circumstances of this case, where there were in effect two discrete contentions, and Aussiegolfa was unsuccessful in relation to the contention that occupied substantially more time, and successful in relation to the contention that occupied significantly less time, it is appropriate to require Aussiegolfa to pay a proportion of the Commissioner's costs, as indicated above. 14 In relation to the AAT Appeal, we consider it appropriate for costs to follow the event; that is, that the Commissioner pay Aussiegolfa's costs. It is true that the Commissioner's appeal was effectively contingent on Aussiegolfa succeeding on the in-house asset issue in the Federal Court Appeal. However, we do not consider this to provide a proper basis to depart from the ordinary rule that costs follow the event. It is also true that the two appeals were heard together, perhaps suggesting a global approach to the issue of costs. However, the two appeals were presented separately, and we consider it practicable for the costs incurred in respect of each appeal to be separately identified and assessed. Accordingly, we consider it appropriate to order that the Commissioner pay Aussiegolfa's costs of the AAT Appeal. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Besanko, Moshinsky and Steward.