Australian Aqua Air Pty Ltd v Chief Commissioner of State Revenue

CASES CITED: Salon Today Pty Limited v M.M.I.R. Pty Limited [2009] NSWADT 71 Murray v Bayside CC [1999] VCAT 1327

APPLICANT A M Davis, solicitor REPRESENTATION: RESPONDENT I Latham, barrister

ORDERS: The application for costs is dismissed

1 The applicant lodged an application on 17 July 2008 for review of a decision made by the respondent to disallow the applicant's objection to payroll tax assessments for the financial years ended 30 June 2003 to 2006.

2 The issue in dispute related to certain contractors who marketed goods supplied by the applicant. Under the contractor provisions contained in Division 7 of Part 3 of the Payroll Tax Act 2007 ("the Act") contractors are taken to be employees and payments made under contracts to contractors are taken to be wages for payroll tax purposes. However, there are exemptions to this general rule. One of these exemptions, provided under s 32(2)(d)(iii) of the Act, relates to contracts under which a person is supplied services for or in relation to the door-to-door sale of goods solely for domestic purposes. Payments made under such a contract are exempt from payroll tax.

3 The respondent has issued a ruling (Revenue Ruling N. PTA007 - Contractor provisions - Door-to-Door Sale of Goods) to explain in what circumstances the exemption will apply. The ruling states that the exemption "will only apply if all the following criteria are satisfied: - the sale is not made to a body corporate - the salesperson is not an employee, but has an agency arrangement for the door-to-door sale of goods directly to the public - the goods must not be purchased for the purpose of retailing or reselling or hiring - the sale is to have taken place either at a customer's residence, or at the customer's place of work, or elsewhere than at the vendor's trade premises or place or place where goods of that sort are normally offered for sale - where the sale is made away from the vendor's trade premises, this cannot have been made as a consequence of the request of the customer or the agent of the customer - the original approach (i.e. the initial physical attendance, not a telephone contact) leading to the sale was not made at the vendor's premises."

4 The application was remitted to the respondent under s 65 of the Administrative Decisions Tribunal Act 1997 ("the ADT Act") on 14 November 2008. Having reconsidered representations made by the solicitors for the applicant, the respondent on 25 February 2009 withdrew the assessments. The respondent accepted that the contractors were exempt under s 32(2)(d)(iii) of the Act.

6 The facts extracted from the documents lodged by the respondent under s 58 of the ADT Act leading to the proceedings are in a chronological order as follows: 1. On 3 April 2007, the applicant's accountants lodged a response to a Pay-roll Tax Questionnaire that the respondent had sent to the applicant. In the response the accountants disclosed the applicant's taxable wages for the years ended 30 June 2003-2006. Attached were details of commissions paid by the applicant in 2003-2006 years, the applicant's financial reports for the year ended 30 June for years 2004 - 2006. 2. On 20 April 2007, the respondent carried out a search on the Australian Tax Office database to obtain the amount of wages paid by the applicant in the tax years 2002 to 2005. 3. On the 8 May 2007, the respondent requested further information from the applicant's accountants. 4. On 7 August 2007, the respondent issued assessments by grouping the applicant with Panivan Enterprises. 5. On 23 August 2007, the applicant and Panivan Enterprises, represented by Townhills Group, a firm of accountants, lodged notices of objection against the Notices of Assessment. 6. On 19 November 2007 and 27 February 2008, the respondent requested further information which was supplied by the applicant on 22 January 2008 and 11 March 2008. 7. On 3 June 2008, the respondent disallowed the objections. 8. On 26 June, T Davis & Associates, a firm of solicitors, wrote to the respondent indicating that the applicant would seek a review of the respondent's objection decision in the Supreme Court of New South Wales. 9. In a letter dated 14 July 2008, the solicitors for the applicant informed the respondent that it had lodged on behalf of the applicant an application at the Administrative Decisions Tribunal. In that letter, the solicitors also stated as follows: "However, we wish to point out that in order to save costs there is a fundamental error in your letter to Townhills Group dated 3 June 08. It may well be the case that Townhills, who were our client's accountants, but have now been dismissed, failed to properly explain to your department the correct way that our client operates. … In light of the above and clearer description of our client's method of operation you may care to review your decision."

7 The conduct of the proceedings before the Tribunal have been summarised by the respondent in his submissions as follows: "15. On 13 August 2008, the application was first listed for Directions before Deputy President Needham. Mr Davies appeared for the applicant by telephone. Orders were made for the filing and service of s.58 documents, the applicant's evidence and the application was listed for further directions on 8 October 2008. 16. On 26 September 2008, the applicant's submissions, which had been filed on 11 September 2008, were served on the Crown Solicitor's Office. 17. On 8 October 2008, the application was listed for Directions before Deputy President Hennessy. Mr Davies appeared for the applicant by telephone. Orders were made requiring the respondent to reconsider the decision by 29 October 2008 or to file and serve evidence by that time. The application is adjourned for further directions to 19 November 2008. On the same date, the applicant wrote to the Tribunal (and did not provide copy to respondent), suggesting that the respondent have leave to reconsider his position and a Statement of Facts be agreed, if appearance by telephone not possible. 18. On 6 November 2008, the respondent wrote to the Tribunal requesting that the application be remitted under s.65 of the ADT Act and listed for further directions on 21 January 2009. The applicant consents to the request. 19. On or about 14 November 2008, the Tribunal remitted the application under s.65 of the ADT Act and listed the application for further directions on 21 January 2009. 20. On 21 January 2009, the application was listed for Directions before Deputy President Needham. Ms Haddad appeared for the respondent and mentioned the appearance of Mr Davis. The respondent requested additional time to reconsider the decision. Deputy President Needham adjourned the application to 4 March 2009. 21. On or about 25 February 2009, the respondent reconsidered his decision and allowed the objection. The applicant's solicitor was informed on that date. 22. On 4 March 2009, the application was listed for Directions before Deputy President Needham. Ms Haddad appeared for respondent and mentioned the appearance of Mr Davis. Ms Haddad informed the Tribunal that the objection had been allowed and that the applicant intended to make an application for costs. The application was adjourned to 18 March 2009."

8 On 18 March 2009, the application for costs was listed for hearing.

9 The Administrative Decisions Tribunal Amendment Act 2008 introduced changes to the provisions found in s 88 of the ADT Act under which the Tribunal can make orders for with costs in proceedings before the Tribunal. The new s 88 which applies from 1 January 2009, is in the following terms: " 88 Costs (1) Each party to proceedings before the Tribunal is to bear the party's own costs in the proceedings, except as provided by this section. (1A) Subject to the rules of the Tribunal and any other Act or law, the Tribunal may award costs in relation to proceedings before it, but only if it is satisfied that it is fair to do so having regard to the following: (a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings by conduct such as: (i) failing to comply with an order or direction of the Tribunal without reasonable excuse, or (ii) failing to comply with this Act, the regulations, the rules of the Tribunal or any relevant provision of the enactment under which the Tribunal has jurisdiction in relation to the proceedings, or (iii) asking for an adjournment as a result of a failure referred to in subparagraph (i) or (ii), or (iv) causing an adjournment, or (v) attempting to deceive another party or the Tribunal, or (vi) vexatiously conducting the proceedings, (b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings, (c) the relative strengths of the claim made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law, (d) the nature and complexity of the proceedings, (e) any other matter the Tribunal considers relevant. (2) The Tribunal may: (a) determine by whom and to what extent costs are to be paid, and (b) order costs to be assessed on a basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004 or on any other basis. (3) However, the Tribunal may not award costs in relation to proceedings for an original decision unless the enactment under which the Tribunal has jurisdiction to make the decision provides for the awarding of costs. (4) In this section, "costs" includes: (a) costs of or incidental to proceedings in the Tribunal, and (b) the costs of or incidental to the proceedings giving rise to the application, as well as the costs of or incidental to the application."

10 The applicant's case was essentially that "it is entitled to costs against the respondent in this matter for the following reasons: 1 The respondent had no grounds in fact or in law to ascertain that the applicant was liable to pay roll tax. 2 The applicant's submissions state in detail as to why the respondent was incorrect both as to fact and as to law. 3 On 14 July 08 the applicant's solicitor sent a letter to the respondent, Office of State Revenue, which in the 2nd paragraph states "however, we wish to point out that in order to save unnecessary time and cost there is a fundamental error in your letter to Townhills Group dated 3 June 08". The letter then goes on to explain in considerable detail why the respondent was incorrect. 4 No response was received to the letter of 14 July 08. Subsequent to the filing of the applicant's submissions the respondent applied under Sec 65 for a review to take place of the original determination. 5 The matter was adjourned for such review to take place and on the return summons for directions on each occasion the respondent applied for a further adjournment to further consider its position. The records will show the respondent applied for 4 adjournments. 6 Eventually the respondent conceded that the applicant's submissions and the facts in the applicant's solicitors letter of 14 July 08 were correct. 7 The Office of State Revenue is an organisation with unlimited financial funds at its availability. The applicant on the other hand are an elderly couple who have retired from business and live off their retirement income. The husband has suffered heart trouble and these proceedings have caused the applicants great stress and anxiety and finding the amount of tax had to be paid under protest was great hardship to them particularly as the respondent threatened to charge interest at over 14.5% pa. 8 The applicants have incurred substantial accountancy and legal fees in establishing their complete innocence as to the suggestion they had failed to pay payroll tax. 9 The applicant submits under the above circumstances it is just and equitable that the respondent pay the applicant's costs incurred by way of these proceedings."

11 The respondent's reply to applicant's submissions were summarised in his written submissions as follows: "40. The respondent submits that each party should bear its own costs in these proceedings. It would not be fair to award costs against the respondent as there is no evidence to suggest that he has "conducted the proceedings in a way that unnecessarily disadvantaged" the applicant and has not prolonged "unreasonably the time taken to complete the proceedings". 41. The submissions of the applicant really go to three points. First, it is said that the respondent had no grounds in fact or in law to ascertain that the applicant was liable to payroll tax. Second, it is said that the Office of State Revenue is an organisation with unlimited financial funds. Third, it is said that the applicant is an elderly couple. 42. Broadly put, the respondent submits that it would not be fair in the circumstances to award costs where section 65 of the ADT Act allows the decision maker to reconsider their decision and where the respondent did so. Secondly, the respondent submits that its financial circumstances should not be taken into account in determining costs. As to the third point, the respondent submits that the applicant is in fact an incorporated body. The health or otherwise of an elderly couple is not relevant."

12 There was no dispute that the proceedings before the Tribunal had been conducted by the respondent in a professional manner. The adjournments to allow the respondent to reconsider the decision under review were by consent. The applicant's principal grievance was the failure by the respondent's officers to understand the factual situation in relation to the exemption given by s 32(2)(d)(iii) of the Act to contractors who independently approached buyers on a door-to-door sale of goods basis. The complaint was really directed at the conduct of the respondent in the pre-litigation dealings with the applicant's accountants.

13 Section 88 previously allowed the Tribunal to award costs in relation to proceedings before it, but only if satisfied that there were special circumstances warranting an award of costs. The old law did not prescribe the factors to be taken into account to reach this conclusion. The discretion was difficult to exercise and to assist the Tribunal; the President issued a practice note in which he suggested various special circumstances that may justify a costs order.

14 The old s 88 was repealed and replaced by a new s 88 by the Administrative Decisions Tribunal Amendment Act 2008. The new s 88 came into operation from 1 January 2009 and applies in this matter.

15 When introducing the new s 88, the Attorney in his Second Reading Speech, made the following statement: "The bill also addresses a recommendation of the statutory review that concerns costs. It amends section 88 to confirm that the parties in the tribunal are to bear their own costs unless the tribunal orders otherwise, and incorporates an expanded range of matters to be considered in the making of an award of costs. The provision is modelled on the provision contained in the Victorian Civil and Administrative Tribunal Act 1997 ."

16 In a recent decision, Salon Today Pty Limited v M.M.I.R Pty Limited [2009] NSWADT 71, Judicial Member Molloy described the changes as follows: "… new Section 88 does indeed start from the proposition that each party is to bear their own costs in proceedings before this Tribunal. However, that is not the be all and end all of the matter. What the Parliament has done is take away the requirement for "special circumstances", which has been interpreted (in my view) too restrictively throughout the various Divisions of this Tribunal (but rather less restrictively in this Division), and has introduced a concept of fairness such that the Tribunal "may award costs in relation to proceedings before it, but only if it is satisfied that it is fair to do so having regard to" a number of specified parameters/factors. But the importance is this: the two-step approach of "special circumstances warranting an order for costs" is now replaced by a fairness test having regard to a number of parameters/factors. A fairness test is a much more just test."

17 I should add, relevant to this matter, the new s 88 has, however, introduced a restrictive approach in awarding costs. The new s 88 only allows the Tribunal to have regard to matters directly associated with the proceedings. The matters set out in s 88(1A) are specific to matters relating to the proceedings. Section 88(1A)(e) allows the Tribunal to have regard to "any other matter that the Tribunal considers relevant" but that has to be in relation to the proceedings.

18 This outcome is in part due to the specific matters that are set out in the new s 88(1A), which has been really a "cut and pasted" job, by the draftsman. The draftsman has taken these matters from the Victorian legislation which, as was noted by the Victorian Civil and Administrative Tribunal in Murray v Bayside CC [1999] VCAT 1327 "only has jurisdiction to deal with the costs in the proceeding at the Tribunal". Under the Victorian legislation there is no provision to award any pre-litigation costs incurred by an applicant. The new s 88 in introducing the factors to be considered, however, retained the old definition of "costs". The definition allows the Tribunal to award "costs of or incidental to proceedings in the Tribunal" and "the costs of or incidental to the proceedings giving rise to the application, as well as the costs of or incidental to the application". The definition includes pre-litigation costs of a party.

19 There is, therefore, this anomaly in the new s 88, which only allows the Tribunal to take into account factors and matters arising from the proceeding in a particular matter without any regard to pre-litigation conduct of a party. But if the Tribunal concludes in a particular case on the basis that it is fair to award costs, the Tribunal can under the new s 88 also award pre-litigation costs incurred by a party. But this new approach clearly discriminates against a party that makes an application to the Tribunal to redress a decision made by an incompetent administrator, costing the applicant large legal expense through that process, before the benefit of a fair hearing at the Tribunal. The pre-litigation conduct of the incompetent administrator will not be a relevant matter to be taken into account in awarding costs.

20 In this matter, the respondent has been a model litigant before the Tribunal and sought to have the decision reviewed in order to prevent any unnecessary litigation. The adjournments were by consent and the time taken by the respondent to have the matter resolved can only be described as reasonable in the context of the proceedings at the Tribunal.

21 Because I have reached the conclusion that the pre-litigation conduct is not a relevant matter that the Tribunal can have regard to in awarding costs, I need not express any firm view as to the respondent's pre-litigation conduct in dealing with the matter. The only observation that I can make is that a perusal of the correspondence in the s 58 documents disclosed that both the respondent's officers and the applicant's accountants did not deal with the matter in a competent manner. The applicant's solicitors also acknowledged this in their correspondence to the respondent after the application was lodged that the applicant's accountants had "failed to properly explain … the correct way that our client operates". That was the letter sent after the proceedings in the Tribunal had commenced. The respondent's action to have the matter remitted was largely influenced by the submissions made by the solicitors in this letter. There was clearly an issue that had not been properly resolved prior to the application to the Tribunal.

22 In all the circumstances of this matter, the application for costs must unfortunately fail.

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