Bblood Enterprises Pty Ltd v Commissioner of Taxation

1. The respondent pay 20 per cent of the appellant's costs of the appeal, as agreed or taxed.
2. Paragraph 2 of the orders made by the primary judge on 19 September 2022 (in proceeding VID 114 of 2020) be set aside and in lieu thereof it be ordered that the respondent pay 20 per cent of the applicant's costs of the proceeding, as agreed or taxed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT: 1 On 9 June 2023, the Full Court published its reasons for judgment in respect of two related appeals, which were heard together: B&F Investments Pty Ltd as trustee for the Illuka Park Trust v Commissioner of Taxation [2023] FCAFC 89 (the Full Court Reasons). These reasons, which deal with costs issues, should be read together with the Full Court Reasons. The abbreviations used in the Full Court Reasons are adopted in these reasons. 2 The Full Court Reasons dealt with two appeals: (a) B&F Investments Pty Ltd as trustee for the Illuka Park Trust v Commissioner of Taxation (proceeding VID 610 of 2022) (the first appeal), being an appeal from the judgment of the primary judge in proceeding VID 247 of 2021; and (b) BBlood Enterprises Pty Ltd v Commissioner of Taxation (proceeding VID 613 of 2022) (the second appeal), being an appeal from the judgment of the primary judge in proceeding VID 114 of 2020. 3 In relation to the first appeal, we ordered that the appeal be dismissed and the appellant pay the respondent's costs of the appeal, as agreed or taxed. There is no issue to be determined in relation to the costs of that appeal. 4 In relation to the second appeal, we decided that the appeal should be allowed on the basis of the second ground relied on by BBlood Enterprises Pty Ltd (referred to as "BE Co" in the Full Court Reasons), namely that, if s 100A applied to cause BE Co not to be presently entitled to the income of the IP Trust, the assessment issued to BE Co was necessarily excessive. In addition to allowing the appeal, we made an order that paragraph 1 of the orders of the primary judge made on 19 September 2022 in proceeding VID 114 of 2020 be set aside and in lieu thereof it be ordered that: (a) The application be allowed. (b) The respondent's objection decision in relation to the year of income ended 30 June 2014 be set aside and in lieu thereof the objection be allowed in full. 5 In relation to the costs of the second appeal and of the relevant proceeding below, we gave the parties a period of time to file any agreed minute of proposed order. We also provided that, if the parties could not agree, then each party should file and serve a short submission on costs, and the issue of costs would be determined on the papers. 6 The parties could not agree on costs, and each party has filed a short submission. The positions of the parties are as follows: (a) BE Co submits that the Commissioner should be ordered to pay its costs, both of the second appeal and the relevant proceeding below (including the interlocutory application). We take the reference to the interlocutory application to be the interlocutory application filed on 6 October 2022 that was dealt with by the primary judge on 27 October 2022: BBlood Enterprises Pty Ltd v Commissioner of Taxation (Costs) [2022] FCA 1278. (b) The Commissioner submits there should be no order as to costs in respect of the second appeal and the relevant proceeding below. In the alternative, the Commissioner submits that, if the Court is minded to make an order awarding BE Co some part of its costs in respect of the second appeal, any such award should not exceed 25 per cent of those costs. 7 The principles regarding costs are well established. It is sufficient for present purposes to refer to the following passage. In Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd (No 2) [2017] FCAFC 158, the Full Court summarised these principles at [9]-[11]: 9 Section 43(3)(e) of the Federal Court of Australia Act 1976 (Cth) provides that an award of costs may be made in favour of, or against, a party whether or not that party is successful in the proceeding. The approach usually taken is that costs follow the outcome of an appeal: see Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; see also Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [303]; Oshlack v Richmond River Council (1998) 193 CLR 72 at [66]-[68]. 10 In Queensland North Australia Pty Ltd v Takeovers Panel (No 2) (2015) 236 FCR 370, Dowsett, Middleton and Gilmour JJ, after referring to Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 and State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174, said at [11] that these decisions treat the success or failure of the relevant party as being the starting point in consideration of the question of costs, but contemplate at least three distinct categories of situation in which a successful party might be deprived of costs, or even ordered to pay the costs of the other side. These were identified as follows: One such category is where the applicant has been only partially successful in that it has not obtained all of the relief sought. The second category is where a party has succeeded in obtaining the relief sought, but has not succeeded on all bases (factual or legal) upon which it sought such relief. Of course, it is possible that a particular outcome will fall into both categories. A third category involves consideration of the successful party's conduct of the case. 11 After referring to the decision of Finkelstein and Gordon JJ in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107, Dowsett, Middleton and Gilmour JJ in Queensland North Australia then said at [18]: [Section 43 of the Federal Court of Australia Act] does not mention costs following the event. In Ruddock, Bowen Investments and Sportsbet, the Court proceeded on the basis that ordinarily, the successful party may reasonably expect to receive its costs, whether that outcome be described as costs following the "event" or otherwise. The question of costs is within the Court's discretion. As we have said, relevant factors include the extent of a party's success, the extent of its success or failure on individual issues and its conduct of the proceedings. 8 The above passage was approved by the Full Court in Caffitaly System S.P.A. v One Collective Group Pty Ltd (No 2) [2021] FCAFC 164 at [5]. 9 In the circumstances of the present case, we consider that it is artificial to view the second appeal in isolation. The two appeals were heard together, and there was a substantial overlap in the factual foundation of the two appeals. Looking at the two appeals as a whole, the Commissioner was substantively successful. 10 In relation to the second appeal, while BE Co was successful, this was on a procedural issue, namely whether the Court should set aside the alternative assessment. There was no issue between the parties that, if the Commissioner was successful in relation to s 100A of the Income Tax Assessment Act 1936 (Cth), the alternative assessment was excessive. The primary judge held that the alternative assessment should not be set aside. The Full Court took a different view, holding that the alternative assessment should be set aside. This issue occupied a relatively small portion of the written and oral submissions. The Full Court did not consider it necessary to determine the dividend stripping issue, which occupied the large part of the written and oral submissions in relation to the second appeal. 11 Having regard to the above circumstances, we consider it appropriate to order that the Commissioner pay a small portion of BE Co's costs of the second appeal. It is appropriate to take a broad brush approach to this. Having regard to the proportion of the written and oral submissions devoted to the issue upon which BE Co was successful (ground 2), we consider it appropriate to make an order that the Commissioner pay 20 per cent of BE Co's costs of the second appeal. 12 In relation to the relevant proceeding below (proceeding VID 114 of 2020), in circumstances where the Full Court reached a different view to the primary judge as to the appropriate orders, the issue of costs needs to be re-visited. Approaching the matter on the basis that the primary judge should have come to the same conclusions as the Full Court, we consider it appropriate to make the same order as to costs as for the second appeal, namely that the Commissioner pay 20 per cent of BE Co's costs of the proceeding. Accordingly, we will make an order that paragraph 2 of the orders made by the primary judge on 19 September 2022 (in proceeding VID 114 of 2020) be set aside and in lieu thereof it be ordered that the respondent pay 20 per cent of the applicant's costs of the proceeding, as agreed or taxed. 13 Insofar as BE Co seeks a costs order in its favour in relation to the interlocutory application at first instance, which we take to be the interlocutory application filed by BE Co on 6 October 2022, we do not consider it appropriate to vary the primary judge's costs order. On 27 October 2022, the primary judge dismissed BE Co's interlocutory application and ordered BE Co to pay the Commissioner's costs of that application. We do not consider it appropriate to disturb that costs order in circumstances where: (a) the notice of appeal did not challenge the primary judge's disposition of the interlocutory application; and (b) even though BE Co was successful on appeal in relation to the alternative assessment point, it does not follow that its interlocutory application should have succeeded, given the reasons for judgment that had already been delivered and the orders that had already been made. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Moshinsky, Colvin and Hespe.