Chan v Chief Commissioner of State Revenue

Chan v Chief Commissioner of State Revenue - [2021] NSWCATAD 266 - NSWCATAD 2021 case summary — Zoe

[1]

Reasons for decision

These proceedings were brought by the applicant Ms Yoke Ping Chan pursuant to s 96 of the Taxation Administration Act 1996 (TAA) and related to review of surcharge land tax assessments raised by the respondent with respect to the 2017, 2018 and 2019 land tax years. The applicant was assessed for surcharge land tax pursuant to s 5A of the Land Tax Act 1956 (LTA) on residential land owned by the applicant on the basis that she was a "foreign person" within the meaning of s 104J of the Duties Act 1997 for each of the relevant years.
Residential land owned by a foreign person at midnight on 31 December, commencing with the 2017 land tax year, is to be charged and levied a surcharge land tax in addition to any land tax which is payable in respect of that residential land under the LTA. In this matter the applicant contended that the surcharge land tax was not to be levied on the applicant's property at Eastwood because the applicant was eligible to claim the principal place of residence exemption (PPR) pursuant to s 5B of the LTA.
The applicant sought a remission of surcharge land tax on the basis that her overseas travel from Australia formed part of her obligations and instructions from her employer, YCH Logistics Australia, and had inadvertently triggered her foreign person status. On 30 March 2020 the respondent disallowed the objection on the ground that he lacked the discretion to take into account the personal circumstances of the applicant and the levy of her foreign surcharge could not be waived in consideration of her employment commitments. On or about 4 May 2020 the applicant brought proceedings in this tribunal seeking review of the assessments.
The proceedings were scheduled to be heard on 8 December 2020. On 3 December, the respondent's representative contacted the applicant's representative to inform him that the respondent had reconsidered his position in respect of the proceedings. On the following day he wrote to the applicant confirming that following the receipt of the applicant's evidence and submissions in reply, the respondent had reconsidered his positions in respect of the 2018 and 2019 land tax years and accepted that the applicant had now discharged her onus and was entitled to the principal place of residence exemption under s 5B of the LTA. With respect to the 2017 land tax year, for which the parties agreed that the applicant was liable, the applicant would be liable for surcharge land tax.
The Chief Commissioner accordingly revoked the assessments for the 2018 and 2019 land tax years and the applicant withdrew her application for review of the 2017 assessment. The applicant claimed, however, that the respondent should have accepted much earlier that the assessments for 2018 and 2019 were erroneous, and that because of the delay in revoking the assessments, she incurred unnecessary costs in contesting those assessments in the tribunal. Consequently, while the substantive matters in this application have been resolved, there is a live issue between the parties as to whether the Chief Commissioner should pay some or all of the costs incurred by the applicant.
In furtherance of the costs claim, the applicant applied to the tribunal for a summons for the production by the respondent of specified documents relating to the applicant's claim for exemption from surcharge land tax and the respondent's dealing with that claim. In response to the summons, the respondent produced a bundle of documents but asserted client legal privilege in relation to others, claiming that they should not be released to the applicant. Frost SM ruled on the privilege claim on 17 June 2021: Chan v Chief Commissioner of State Revenue [2021] NSWCATAD 170.
On 20 July 2021, Higgins SM made certain directions in relation to the costs application, including that, subject to any further order, the application for costs be determined in the absence of a hearing, under s 50(2) of the CAT Act, that is, in the absence of a hearing, or "on the papers". That is the motion now to be decided.

[2]

Applicable legislation

The main issue in the substantive proceedings centred on s 5B of the LTA: 5B Surcharge land tax - residence requirement applying to principal place of residence exemption (1) A person is eligible for an exemption from liability to pay surcharge land tax in respect of residential land for a land tax year because the land is the principal place of residence of the person only if - (a) the person is a permanent resident at midnight on 31 December of the previous year, and (b) the Chief Commissioner is satisfied that, during the land tax year, the person intends to use and occupy the land as the principal place of residence of the person in accordance with the residence requirement, and (c) the person lodges a declaration with a land tax return required to be furnished under section 12 of the Principal Act for the land tax year to the effect that the person has that intention. (2) The person must use and occupy the land as the person's principal place of residence for a continuous period of 200 days in the land tax year. This requirement is referred to as the residence requirement. (3) If the residence requirement is not complied with by the person, surcharge land tax liability is to be assessed or reassessed as if the person's exemption from liability to pay surcharge land tax for the land tax year had never applied. (4) The failure of the person to comply with the residence requirement is taken to be a tax default for the purposes of Part 5 of the Taxation Administration Act 1996. (5) Any interest that is payable on the tax default in accordance with Part 5 of the Taxation Administration Act 1996 accrues on the amount of surcharge land tax assessable to the person for the period commencing on the last day allowed for furnishing the land tax return for the land tax year and ending on the day when the assessment or reassessment referred to in subsection (3) is made.
The tribunal's power to award costs to a party is governed by s 60 of the CAT Act: 60 Costs (1) Each party to proceedings in the Tribunal is to pay the party's own costs. (2) The Tribunal may award costs in relation to proceedings before it only if it is satisfied that there are special circumstances warranting an award of costs. (3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following - (a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to 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 claims 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) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance, (f) whether a party has refused or failed to comply with the duty imposed by section 36(3), (g) any other matter that the Tribunal considers relevant. (4) If costs are to be awarded by the Tribunal, the Tribunal may - (a) determine by whom and to what extent costs are to be paid, and (b) order costs to be assessed on the basis set out in the legal costs legislation (as defined in section 3A of the Legal Profession Uniform Law Application Act 2014) or on any other basis. (5) In this section - costs includes - (a) the costs of, or incidental to, proceedings in the Tribunal, and (b) the costs of, or incidental to, the proceedings giving rise to the application or appeal, as well as the costs of or incidental to the application or appeal.
The issue in this motion is thus whether the correct and preferable decision is that the tribunal should be satisfied that special circumstances exist to warrant the exercise of the discretion in s 60 in favour of making an order for costs in the applicant's favour.

[3]

Applicant's evidence

The applicant relied on an affidavit by Mr Bill Smirniotis, a chartered accountant of the firm of RBK Partners, who is the applicant's accountant, affirmed on 9 August 2021. In about December 2019, Ms Chan referred to him a land tax assessment in which she had been assessed as having to pay the land tax surcharge for the 2017, 2018 and 2019 land tax years. On 14 July 2020, he called the land tax information line at the Office of State Revenue (OSR) (now Revenue New South Wales) and spoke to a woman who appeared to have knowledge of the subject matter of his inquiry.
Mr Smirniotis explained the nature of the problem and asked her why his client had been assessed on her PPR. The officer replied, "There is no PPR exemption for surcharge land tax". When he queried that, she replied, "All our literature and documents on this issue state very clearly that the surcharge tax is applied to all properties of a foreign person, including a permanent resident who is not in Australia for the required period, with no exemption on the PPR. The PPR exemption for permanent residents applies only to land tax, not the surcharge tax".
He called the land tax line again on 15 February 2020 and spoke to a man who identified himself as "Phil", but gave no surname. He explained to Phil that the applicant had had the land tax surcharge in respect of her PPR reversed for 2018 and 2019 and asked why it had been applied to her PPR for the 2020 assessment. "You should review our website that sets out the position in relation to the application of land tax surcharge to the PPR of foreign persons", Phil replied. "Let me check with someone here". After putting the deponent on hold for seven or eight minutes, he said, "The surcharge is applied on the PPR of foreign persons and no exemption is available".
Mr Smirniotis then stated that in the 2021 land tax assessment, the surcharge was not applied in respect of the applicant's PPR and he understood that the applicant did not travel overseas during the 2020 calendar year sufficiently to be classified as a foreign person in respect of that year, because of the pandemic.
The applicant also adduced an affidavit by the applicant's solicitor, Mr Timothy J Benjamin, affirmed on 10 August 2021, stating that on 14 July 2020 he had a telephone conversation with Mr Ryan McGowan at the Crown Solicitor's Office (CSO), the solicitors for the respondent in the current matter. Mr Benjamin explained that he would not be pursuing the grounds of fairness the applicant had raised in her objection as he understood that there was no power in the Commissioner to waive the surcharge on the grounds of fairness in his discretion. He would, however, be raising a new ground based on her being entitled to an exemption under s 5B in respect of her PPR. In that regard she needed to lodge a s 1(c) declaration and asked for an extension of time to do so. Copies of correspondence relating to the grant of the extension and related matters were attached.
After some further exchanges dealing with s 5B, a CSO officer, Ian **** wrote to a colleague, Darren ****, on 28 July 2020 stating that, "It appears the interpretation of the PPR exemption for foreigners will be tested", to which Darren replied on the same day, observing, "Should be interesting. I don't like our chances on our 5B interpretation".
Subsequently, on 17 August 2020 Mr McGowan emailed Mr Benjamin stating that the applicant was not eligible for the s 5B exemption because, in respect of the 2017 tax year, s 5B did not exist, and in respect of 2018 and 2019, the respondent was not satisfied of his client's "eligibility for the exemption based on the requirements of s 5B (see in particular s 5B(2))".
On 13 October 2020, the respondent filed and served an affidavit of Mr McGowan dated 13 October 2020 that essentially adduced evidence from the Department of Home Affairs concerning the applicant's travel overseas and back to Australia during the period 1 January 2016 to 31 December 2019. The respondent's written submissions dated 9 October 2020 were also served.
Following some internal OSR exchanges expressing uncertainty about the interpretation of s 5B, Ian emailed a colleague, Adam **** on 3 December 2020 stating, "Hi, Adam, I had a brief discussion about that this morning. Cullen [Cullen Smythe, the respondent's 2iC] wants to consider seeking an amendment and in the meantime maintain the 'current' approach. He thinks not having an NCAT decision in Yoke allows us to maintain our current position". Adam replied to Ian the same day, "Thanks for that Ian. I will let things travel along as they are".
On the same day Darren emailed Adam, stating "Hi Adam, thanks for that. We have disallowed a number of them on the basis of not satisfying the continuous 200 day requirement. Do you know where this leads us now?" On 7 December 2020, Adam emailed Darren, stating "Ian informed me that he had spoken to Cullen who indicated we would continue as we currently are as we are settled on this matter. Cullen is looking to legislative change".
On 3 December 2020, Mr Benjamin had a telephone conversation with Mr McGowan, of which his note reads "Telephone RMcG - CC wishes to withdraw, cl entitled to 2018 and 2019 surcharge exemption no costs". He did not recall Mr McGowan specifying in that conversation that the respondent wished to withdraw because he was now satisfied that the applicant had discharged her onus of proof that the property was her PPR.
Following some further correspondence about the summons to produce, costs and other matters, Mr Benjamin's firm emailed CSO on 15 February 2021 responding to CSO's objections to and purported reasons for not being able to produce documents sought by the summons to produce, and identifying what in their view was the central issue on the question of the applicant's entitlement to an order for costs, as to whether the respondent changed its position in the substantive proceedings because of the additional evidence adduced by the applicant in relation to her PPR, or their submissions in reply. The email also asserted that the respondent had failed to satisfy the standards applicable to him as a model litigant in the way the respondent had conducted the proceedings.
The applicant filed a further affidavit in reply affirmed by Mr TJ Benjamin and dated 7 September 2021. It disputed a number of factual points in Mr McGowan's August affidavit and referred to the telephone directions hearing of 15 March 2021 before Frost SM. His recollection was that Mr McGowan had said words to the effect that, "The Respondent also objects to producing the emails on the ground of relevance". That was discussed between Frost SM, Mr McGowan and himself, and Frost SM eventually stated words to the effect of, "We will deal with the question of privilege first and if it is found that any emails are not privileged, I will give you the opportunity of raising any further objection at that time".

[5]

Applicant's submissions

The applicant filed detailed written submissions by Mr TJ Benjamin on 10 August 2021 (exhibit A3) which, after outlining the law and the history of the proceedings, contended that at or about the time that the respondent decided to grant the applicant the benefit of the s 5B exemption, the evidence disclosed that the respondent's delegates were not discussing whether the applicant had discharged her onus of proof in relation to the PPR issue, but rather the construction of s 5B in relation to whether absences overseas during the relevant 200 day period meant that the taxpayer would be denied the exemption. OSR emails made it clear that the reason for granting the exemption and withdrawing from the proceedings was so that the respondent could maintain the incorrect construction of s 5B, given that the respondent had applied that construction in the past to other taxpayers, and afforded the opportunity to seek to have the legislation amended so that that position could ultimately be maintained.
The respondent's delegates, the applicant contended, had clearly 1. believed that it is appropriate that an agency of the executive government not seek to have a law that it administers clarified and properly construed by an appropriate judicial body, but continue to misconstrue and apply that law, and 2. had acted on that belief. An extract from the respondent's website stated that the exemption applied from 1 July 2019 and must be applied for by 31 March in the relevant tax year. In fact the exemption commenced in respect of the 2018 tax year and there is nothing in the legislation that prescribes that the application for the exemption must be made by 31 March in the relevant year. While the error has been fixed, the requirement to apply for the exemption by 31 March persists. In each case, the question whether absences overseas during the continuous 200 day period is avoided, so as to create the impression that in order to obtain the exemptions applicants must be in Australia residing in the claimed PPR during that continuous 200 day period.
When it was considered that the respondent had an opportunity to amend the public communication on that issue, and having regard to the communications between the parties, the respondent had deliberately determined to continue to misapply the law. Further, the evidence showed that the respondent's officers were of the view that the respondent's construction of s 5B was unlikely to be correct as early as 28 July 2020.
The applicant submitted that special circumstances within the meaning of s 60 existed essentially on two bases: 1. there was a public interest in having the erroneous construction of s 5B asserted by the respondent judicially corrected. 2. The respondent's conduct in: 1. not engaging in discourse concerning the divergent and mutually exclusive constructions of s 5B, but instead forcing litigation to proceed when it was not reasonable to do so: 2. making unreasonable, unsustainable and at times misleading submissions, 3. withdrawing from the substantive proceeding two business days before the hearing, 4. pretending that the timing of its withdrawal was a result of the applicant's evidence in reply, 5. not acting in accordance with its obligations as a model litigant, and 6. maintaining its incorrect construction of s 5B following its withdrawal from the substantive proceeding.

[9]

Onus of proof submission

The respondent's central justification for the delay in conceding the case until just over two business days before the hearing is the discharge of onus point. The respondent had been at pains to emphasize that the applicant bore the onus of proof in relation to her application, pursuant to s 100(3) of the Taxation Administration Act (TAA). The respondent argued that an applicant had to show every piece of evidence she could in order to establish that the property was her PPR, such as rate notices, driver's licence, supplier invoices and the like, in order for the respondent to be satisfied on the balance of probabilities that the property was the applicant's PPR.
The respondent argued that only when the applicant did that in her affidavit was the respondent so satisfied. But the respondent had never adequately dealt with the applicant's response that in the context of the case, the applicant's evidence in her statutory declaration sufficed to satisfy the respondent, acting reasonably, that the connexion between the applicant at the property was such as to establish it as her PPR. The respondent had never explained why the evidence he had as at 20 August 2020 was insufficient. It was no answer to say that there was other evidence that she could have provided, but did not provide, if the evidence that was provided was sufficient.
Section 100 TAA did not mean that the applicant had to produce every piece of evidence germane to the issue that she had, in order to establish on the balance of probabilities that the property was and is her PPR. The applicant states that she has no residence anywhere else in the world. Where the applicant has stated that there was only one residence in evidence, the evidence adduced via the statutory declaration was more than sufficient to discharge the applicant's onus of proof. Even the immigration material produced by the Department of Home Affairs pursuant to the respondent's summons contained nothing that suggested that the property was not the applicant's PPR.

[15]

Conclusion

Conduct clearly departing from the model litigant policy clearly amounted to conduct that was "out of the ordinary" and probably "grossly unreasonable" and "seriously unfair". The respondent had conceded the applicant's objections because of a conclusion that the respondent was bound to lose the construction point. What had clearly happened was that CCSR had been found misinterpreting a piece of legislation, and rather than face the fact and act in accordance with the usually expected precept, had instead attempted to obfuscate the process in an effort to preserve its position in relation to grievously incorrect assessments by it.
When it saw that its strategy was going to fail, it decided simply to concede the applicant's case so that there would be no determination binding on it. The respondent could just as easily have conceded the case in July 2020 when invited to do so, but instead had proceeded with the litigation, in the applicant's submission unreasonably, and that put the applicant to a great deal of wasted time, effort and cost. The applicant should therefore have her costs of both the substantive proceedings and the costs application on an indemnity basis, or else at least on the ordinary basis.
In detailed written submissions in reply dated 7 September 2020, the applicant reiterated and emphasized those points and pointed out that the applicant had dealt with the fact that her initial objection, when she was not legally represented, did not include the ground ultimately relied on and the respondent had not dealt with her primary submission in relation to onus of proof and had been selective in considering the contents of her statutory declaration. The respondent had not produced evidence to support the assertion that he was not satisfied on the evidence in the statutory declaration that the property was the applicant's PPR. The respondent had the opportunity to waive privilege on any of the produced emails that has been deemed privileged or to file and serve affidavits of the relevant officers and decision-makers concerned about what was in their minds after receiving the statutory declaration, but chose not to do so.
The length of the absences of the applicant overseas was explained in the statutory declaration as purely due to work commitments, and not because she had lived anywhere else. She did not need to be physically present at the property even within Australia for the property to be her PPR for the purposes of the residence requirement in s 5B. The only questions were whether there were any other residences of the applicant anywhere in the world that was her PPR during the relevant period, or did she use or deal with the property in a way inconsistent with it being her PPR in that period.
It was not necessary to hypothetically try the substantive issues in the proceedings for the purpose of the applicant's application for costs. The issue was whether on the evidence, the tribunal accepted: 1. The primary submission of the respondent that it was not until he received the applicant's affidavit that he was satisfied that the property was the applicant's PPR and that she was therefore entitled to the exemption under s 5B (and if so, if it was reasonable for the respondent so to have acted), or 2. The primary submission of the applicant that the respondent acted as he did because he wished, and believed, it was a proper exercise of his statutory duty, to maintain a construction of s 5B that he had applied to other taxpayers in the past, and did not wish to have the tribunal determine the proper construction of that section in light of the arguments put to the respondent by the applicant from as early as 14 July 2020.
The applicant's position was supported by the fact that the respondent had not changed his public communications (such as its website, which incorrectly paraphrased s 5B) to make clear that the holder of the relevant visa who is deemed under s 5A to be a foreign person because that person has not in the relevant years spent the requisite 200 day cumulative period in Australia, did not have to be physically living in their PPR or, or indeed, be in Australia continuously for 200 days in the relevant year in order to qualify for the exemption. That fact was relevant to the determination of the issue of costs, because it was consistent with and supported the conclusion that the applicant was inviting the tribunal to make.
The fact that the accessed emails disclosed that only one officer, Darren, had said directly that "I don't like our chances with our 5B interpretation" was beside the point. Not only was there no email in evidence that that opinion was not shared by others, but the accessed emails read as a whole clearly conveyed that Mr Smythe had made a policy decision (a) to maintain the existing construction of s 5B, (b) to avoid having the matter determined by the tribunal and (c) to seek a legislative change in the future so that the legislation was in accordance with the policy that has been adopted up to that point.
The applicant had admitted that she had a modest financial incentive in seeking that the tribunal determine whether she was entitled to the exemption. Her submission was that there was a public interest in (a) having s 5B, which had never been the subject of judicial interpretation properly construed by the tribunal, and (b) having the tribunal correct the respondent's misapplication of s 5B to other taxpayers, if it found that its construction was incorrect. There was also a public interest in the tribunal pronouncing that the respondent's actions to prevent judicial clarification of the law were unacceptable or inappropriate. That proposition was valid whether or not these proceedings could properly be classified as "public interest litigation". That category typically involves environmental cases where a person with no financial interest seeks judicial review of decisions of planning authorities or the actions of developers. The question is often, given that the person seeking relief failed to obtain it, whether the court should depart from the ordinary rule that costs follow the event. Here, the position is not that the applicant was unsuccessful, but was successful and is seeking to establish the public interest circumstances mentioned above.
It did not follow, however, that the case did not fall within the category of public interest litigation. As Beazley JA said in Delta Electricity v Blue Mountains Conservation Society Inc [2010] NSWCA 263, [62], additional factors included "that the proceedings raised a novel point of law and were reasonably arguable, that the appellant had established the Minister had not taken into account one of the objects of the Environmental Planning and Assessment Act 1979 and that the Minister's failure to do so was contrary to good decision-making". A pecuniary interest was only one of a number of considerations to be taken into account in determining whether or not proceedings are in the category of public interest litigation.
The facts that s 5B had not previously been the subject of judicial interpretation, involved a revenue law applying to an arbitrary number of members of the public, determines the conditions to be satisfied for those persons to be exempt from that revenue law in respect of their home and was the subject of significant divergences in the interpretations held and applied by the respondent and submitted by the applicant as flowing from the natural meaning of the words of the legislation was sufficient to place these proceedings in the category of public interest litigation.
The applicant did not submit that it was merely the fact that the respondent changed his mind three weeks after receiving the applicant's reply materials that constituted a special circumstance. In fact, if the applicant's reply materials contained new evidence that genuinely caused the respondent to alter his position, then the applicant would concede that the fact that the respondent took three weeks to consider the material and advise of his changed position would not of itself constitute a special circumstance. Rather, it was the fact that the evidence showed that from possibly as early as July 2020 the respondent was never going to proceed to hearing, yet still made the applicant expend the costs, time and effort that she did, that constituted a special circumstance.
The accessed emails were evidence that the respondent had a separate agenda to (a) maintain his existing construction of s 5B as a matter of policy, (b) not concede the applicant's construction of s 5 5B, (c) prevent the matter being heard by the tribunal, and (d) seek future legislative change to ensure the legislation accorded with the respondent's policy, and previous applications of s 5B. There was no evidence that the applicant had since 2013 used and occupied some other place as her PPR. The respondent had failed to adduce any evidence as to why he considered that the applicant had failed to discharge her onus in circumstances where such failure invited an adverse Jones v Dunkel inference. The applicant submitted that the tribunal really has no alternative but to find that such an assertion is a pretence. The fact was that the respondent held a construction of s 5B that a simple consideration of the legislation itself quickly revealed to be mistaken and unsupportable.
"Most tellingly, however, it is the fact that the Respondent conceded the exemption just over two business days before the hearing, purportedly because the Applicant's Affidavit discharged her onus whereas the Statutory Declaration did not, when the only basis for doing so in terms of the construction of section 5B, was if the construction advocated by the Applicant was the correct one. In other words, if the Respondent maintained the construction that he had done up to that point, there was no basis for conceding the exemption to the Applicant, once being satisfied that the Property was the Applicant's PPR".
The initial subjective state of mind of the applicant when she was legally unrepresented was not determinative of whether or not the proceedings were properly characterized as public interest litigation, or whether issues of clear public interest that the applicant, when legally represented, identified soon after the proceedings were commenced, were relevant to there being special circumstances.
The respondent's conduct which the applicant submitted contravened the model litigant policy was the respondent's failure to enter into a dialogue with the applicant's solicitors in July 2020 concerning the proper construction of s 5B, determining that, as a matter of policy, the existing construction of the section should be maintained and thus that a tribunal hearing should be avoided and a legislative amendment sought, and having determined on that course, to not concede the exemption until just over two days before the hearing. Further, the respondent had claimed that he had not granted the exemption earlier because until then the applicant had not satisfied the onus of proof, even though the respondent had accepted the subject property as the applicant's PPR for land tax purposes and there was no evidence of any other consideration being actively evaluated. On all the evidence, the applicant's statutory declaration had discharged the onus.
There was no question that the respondent's conduct was out of the ordinary so as to satisfy s 60(3)(a), c) and (f). An award of costs would not incentivize parties to continue through to hearing when they should have conceded, indeed it would act to incentivize parties in the respondent's position in the future not to engage in the conduct that the respondent had engaged in and to make the concessions that were ultimately made when they should have been made - nearly 6 months before they were.
Ferrington did not assist the respondent as the Appeal Panel in that case had rejected the Commissioner's submission that the applicant had not occupied the premises as her PPR, even though she occupied them for only 23 days.
Although the accessed emails were not written by the decision-makers, they revealed the thoughts and intentions of Mr Cullen Smythe. The fact that the authors of the accessed emails were not the decision-makers or were not authorized to give instructions to CSO was completely irrelevant.
Fitzpatrick and similar cases acknowledged that there is an exception to the general costs rule where one party capitulates or withdraws. It could be appropriate to award costs where one party acts so unreasonably that the other party should have its costs. Where the facts are brief and not in dispute, a consideration of the substantive issues may take place for the purposes of determining costs. The authorities make clear that when there is a large volume of conflicting evidence and questions of credit, it is inappropriate for a court or tribunal to embark on a course of hypothetically trying the substantive issues in order to determine which party would have one has the matter proceeded. But that was not the case here, as the only matter genuinely in dispute was the construction of section 5B. The tribunal did not have to determine whose construction was likely to have prevailed, because the respondent by his actions had conceded its construction was untenable and likely to fail. The real issue in dispute in this case related only to the proper construction of those words. The applicant maintained that the residence requirement was satisfied if the applicant used and occupied the property as her PPR for the required period, so that frequent or lengthy absences from it were not relevant, provided there was no other place that was being used and occupied as a PPR during that period, and there was no use or dealing with the property, such as by lease, that was inconsistent with it being her PPR.
To review this issue, the tribunal did not need to make a definitive determination about the correct construction, but to examine the applicant's submission as to the real reason the respondent did not proceed to hearing. Transfield Services (Australia) Pty Ltd v Gaha showed that there were two exceptions to the general rule about parties paying their own costs when proceedings were settled, one being where one of the parties had acted so unreasonably that the other party should obtain the costs of the action, and the other where the court is satisfied that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter has been fully tried.
The applicant submitted that the respondent had acted at least "out of the ordinary" and, arguably, grossly unreasonably and with serious unfairness to the applicant. There was a clear public interest in having a judicial body consider for the first time a legislative provision that was the subject of a disputed construction. Instead, the respondent had acted according to another agenda, to preserve as a matter of "policy", the position he had taken to that point, by denying the tribunal the opportunity to determine the matter and to seek legislative change in the future to ensure that the legislation accorded with the policy he had taken.

[16]

Consideration

As was noted above, the tribunal's power to award costs derives from s 60 of the CAT Act. Section 60(1) establishes that the primary position is that each party is to pay its own costs of the proceedings. By s 60(2), however, the tribunal possesses a discretionary power to depart from that general rule: "(2) The Tribunal may award costs in relation to proceedings before it only if it is satisfied that there are special circumstances warranting an award of costs". When exercising that power the tribunal may have regard to the matters expressly identified by s 60(3)(a) to (f) and, by s 60(3)(f), to "any other matter that the Tribunal considers relevant".
The general rule in s 60(1) that parties should bear their own costs is designed to promote access to justice generally and to minimize the overall level of costs in tribunal proceedings as far as is practicable: Stonnington City Council v Blue Emporium Pty Ltd [2004] VCAT 1441, [13]. It has also been observed (by the Victorian tribunal) that - Generally speaking, I say that it is important that would-be applicants are not deterred from airing genuine grievances and making genuine claims, by the fear that the Tribunal will award costs against them if they lose, particularly if they lose because they have made a legal mistake (IIQ v Delaney Associates Pty Ltd [2011] VCAT 2056, [30] - [31].
See also Murphy v Chief Commissioner of State Revenue [2012] NSWADT 221, [27] - [28]- a decision of mine, but as far as I know it has not been criticized.
The Appeal Panel in Gaynor v Burns [2015] NSWCATAP 150, [18] outlined the process to be followed when applying s 60: The drafting of s 60(1) evinces the intent of the legislature that generally each party to proceedings in the Tribunal shall be responsible for their own costs. Departure from s 60(1) may occur but only if the Tribunal finds, there are "special circumstances" warranting it to do so. In determining whether there are special circumstances the Tribunal may, in a structured exercise of discretion, have regard to the criteria in s 60 (3) (a) - (g).
Exercising the s 60(2) discretion is thus a two-stage structured process consisting of:

a consideration of whether or not the tribunal is "satisfied" that there are "special circumstances" in relation to the question of costs; and
if so, whether those special circumstances warrant departing from the general rule and making an award of costs.

As was indicated above, it is important to realize that the test applicable in this tribunal is different from the one that governed its predecessor, the Administrative Decisions Tribunal Act 1997, s 88 (and that test itself was altered in 2008). Before 2008, s 88 incorporated a "special circumstances" test, but the 2008 amendments altered the test to "if it is fair to do so" having regard to the listed matters (Robinson, Fitzgerald, Lucy, NCAT - Practice and Procedure (Thomson Reuters 2015), pp 90-91).
I outlined the legislative history of the two provisions in Hamid v Commissioner of Police, New South Wales Police Force (No. 2) [2018] NSWCATAD 93, [25] - [29], [31] and there is no need to reproduce that discussion here. Suffice it to say that the Appeal Panel has noted that the "special circumstances" exception to the general rule in s 60(1) is narrower than the "fair to do so" exception in the former s 88(1A): Obieta v Australian College of Professionals Pty Ltd [2014] NSWCATAP 38: [78]; (see also NCAT Practice, p 92).
In the context of s 60(2), the Appeal Panel has stated that the words "'special circumstances' mean something out of the ordinary, which invites an examination of the particular circumstances of the proceedings under consideration and a comparison with what might be characterised as 'ordinary circumstances'": Alexander James Pty Ltd v Pozetu Pty Ltd (No. 2) [2016] NSWCATAP 75, [13].
Once it is satisfied that there are special circumstances, the tribunal must further be satisfied that they are circumstances "warranting an award of costs": Fitzpatrick Investments Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 103. The exercise of the discretion requires the tribunal "to weigh whether those circumstances [identified by the invoking party] are sufficient to amount to 'special' circumstances that justify departing from the general rule that each party bear their own costs": BPU v New South Wales Trustee and Guardian (Costs) [2016] NSWCATAP 87, [9].

[18]

Public interest: s 60(3)(g)

It is not disputed that public interest can be one of the "special circumstances" that fall within s 60(3)(g). The applicant contends that it is in the public interest that uncertainties in the construction of laws be clarified by judicial authority, specifically where a government agency has been "misconstruing and therefore misapplying a law". Reliance was also placed on Oshlack as showing how aspects of the public interest may be taken into account in exercising a statutory discretion to award costs. That case arose, however, in the context of "public interest litigation" aiming at upholding the public interest and the rule of law, whereas in the present case the applicant's prime motivation for commencing proceedings was to uphold her objection to being assessed for land tax surcharge. Nevertheless, public interest considerations may play a part in determining whether special circumstances exist.
The applicant's main point under this heading was where there had been no judicial or tribunal consideration of a legislative provision, and the agency had been misapplying and misconstruing it, then there was a clear public interest in the matter being brought by the applicant to the tribunal.
That contention depended, however, on the applicant's proposition that the respondent had misconstrued and therefore misapplied s 5B. But as it was a new provision that had never been the subject of judicial or tribunal consideration, it could not be assumed that the applicant's construction was the correct one and the respondent's was wrong. The outcome of contested litigation can seldom be definitely predicted.
Further, while emphasizing what she submitted was the public interest in seeking a tribunal clarification of the construction of s 5B, the applicant did not refer to any case in which a court or tribunal has treated proceedings over a tax objection as public interest litigation, or even as vindicating the public interest at all.
As Ward CJ in Eq. Explained in Transtar Linehaul Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 129, [55], the tribunal could not now be expected to undertake a hypothetical exercise to determine that issue under the umbrella of a costs application. The question of which construction of s 5B was the correct one does not assist in determining whether or not special circumstances exist.

[20]

The respondent's conduct: s 60(a), (c) and (f)

The applicant submitted that the respondent's conduct constituted special circumstances within the above paragraphs in that there was a clear factual issue as to whether the respondent ultimately decided to grant the exemption because it considered that there was only then enough evidence in the applicant's affidavit in reply (exhibit A4) to discharge the onus, or because of reaching the view that the respondent was certain to lose the case and did not wish to have an NCAT decision on the record that would call into question their previous application of s 5B. It was submitted that the respondent acted unreasonably in not accepting the same arguments that ultimately prevailed before significant costs were incurred by the applicant.
Especially in the absence of all or any decided authority on the interpretation of the provision, it would not be appropriate for this tribunal to make a finding on the prospects of success on the constructions adopted either by the applicant or the respondent in relation to the substantive proceedings. Further, as the applicant avers, there is arguably a factual issue as to the motivation of the respondent's officers and advisers. It would hardly be proper for the tribunal to decide such a point on the basis of untested documentary evidence, the significance of which is also disputed by the parties.
The applicant also contended that having regard to the natural meaning of the words of s 5B, the prospects for succeeding on the construction point were "remote at best", as indicated by the internal communications of the respondent's officers. There was also indeed a CSO officer's comment that testing the meaning of the provision "Should be interesting. I don't like our chances on our 5B interpretation".
But the natural meaning rule (also known as the plain meaning rule or the literal approach) is only one of a number of principles of interpretation that can be applied to a statutory provision, especially in a case of first impression. Other principles, such as the Golden Rule, the purposive approach or ss 33 and 34 of the Interpretation Act 1987 could yield a different result. It could not be assumed that the applicant's favoured interpretation would ultimately be embraced by the tribunal or a court. And comments such as "I don't like our chances" are not uncommon when lawyers discuss the prospects of various lines of argument in contested litigation.
In this context the applicant also submitted that s 60(3)(f) was met by reason of the respondent's failure to comply with s 36(3) of the CAT Act's obligation on the tribunal and parties to "facilitate the just, quick and cheap resolution of the real issues in the proceedings". On a general level, proceedings that began on 4 May 2020 and concluded on 3 December 2020 could hardly be regarded as inordinately protracted. The respondent made concessions on certain points and the decision to grant the exemption gave the applicant the result she was seeking, saving the parties costs and inconvenience. Other points are developed below. On the other hand, the applicant herself apologized for her late lodgement of her objection on 26 February 2020 (exhibit R1, p 30).

[21]

Onus of proof submission

The applicant took the respondent to task for requiring her to produce contemporaneous documents that the tribunal would ordinarily consider in this context in accordance with the requirements set out in Chuang, specifically the use of the property as the applicant's residential address for the purposes of her mail, driver's licence, the electoral roll, income tax returns and utility bills, as well as any utility usage statements. In the applicant's submission, the respondent had never adequately dealt with the applicant's proposition that in the context of the facts of the case, the applicant's evidence in her statutory declaration (of 18 August 2020) was sufficient to satisfy the respondent, acting reasonably, that the connexion between the applicant and the property was such as to establish it as her PPR. "The Respondent has never articulated why the evidence he had as at 20 August 2021 was not sufficient, in the facts that pertained to this case. It is no answer to say that there was other evidence that the Applicant could have, but did not, provide, if the evidence that was provided was sufficient, in the factual context of this case, to satisfy the legislative test", the applicant submitted (exhibit A3, para 46).
Her affidavit in reply (exhibit A4), which with attachments totalled 48 pages, contained a great deal of her personal information that was in her possession or easily accessible by her that could have formed part of her evidence in chief, possibly thereby resolving the matter earlier. This tribunal is not in a position to assess the adequacy of untested evidence in the application of s 5B, but the fact that she tendered a substantial volume of information relevant to the respondent's decision-making process suggests that her case as originally formulated fell short of supplying all of the information that was expected. In those circumstances it is far from self-evident that the respondent's decision to grant the exemption could not have been the result of her supplying in exhibit A4 the kind of information usually required.
Further, it is settled law that statements made by taxpayers about the management of their affairs must be scrutinized closely, received with the greatest caution and weighed against the objective facts and the inferences to be drawn from the taxpayer's activities generally: Warriewood Valley Pty Ltd v FCT (1993) 26 ATR 270, 281.
The immigration information produced on summons rather suggests that the decision-makers' initial reservations were warranted. The evidence shows that during the 2018 calendar year, the applicant had spent only a total of 80 days in Australia, as opposed to 285 days outside Australia, the longest continuous period being 170 days overseas. During the 2019 calendar year, she had spent a total of 147 days in Australia, as against 218 days abroad, the shortest duration in Australia during the year being only seven days. She clearly had multiple residences during the 2018 and 2019 tax years, given her lengthy absences from Australia during those years.
The particular details of those overseas residences were not in evidence until her evidence and submissions in reply. The Appeal Panel in Chief Commissioner of State Revenue v Ferrington (GD) [2004] NSWADTAP 41 established that the duration of the stay at the property is relevant for the purposes of considering the extent and quality of the taxpayer's use and occupation. The applicant sought to distinguish Ferrington in her submissions in reply, but there is no doubt that the case established the principle that "to occupy a home as his or her principal place of residence a person's occupation must have a degree of permanence to it: a connexion to a place of residence of a transient, temporary, contingent or passing nature is not sufficient, nor occupation for any other reason".
The applicant submitted that the indicia listed in Chuang, including the extent and quality of the use and occupation of the residence, were of little assistance because those factors were only be treated as "usual" indicia, and in that case there was a competition between two residences. But although the applicant did not own any other properties, she clearly had other residences during 2018 and 2019, in view of her lengthy absences from Australia during those years. Information about the extent and quality of her residence at the Eastwood premises was relevant to the application of s 5B.
At some points, notably in reply, the applicant appeared to be implying that the respondent bore an onus of adducing evidence to show why he was not satisfied that the statutory declaration was sufficient to discharge the applicant's burden of proof. But as the Appeal Panel made clear in Cornish Investments Pty Ltd v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25, [30], [37], "the Appellant's case must move the tribunal away from the starting position …. the Appellant must establish all the facts on which it relies to claim the exemption". The onus was at all times on the applicant to establish by evidence the necessary facts, in a comprehensive way: "It has got to be the whole indicia of things that are done in a home", the tribunal said in Chuang (at [21]).

[24]

Late resolution and no hearing on the merits

Finally, the applicant submits that the concession made by the respondent just over two business days before the scheduled hearing, should be regarded as a factor in awarding costs in favour of the applicant, notwithstanding that no hearing on the merits had taken place. While not disputing the facts, the respondent drew attention to the nine-day delay by the applicant in filing and serving her evidence and submissions in reply as being a contributing factor.
The applicant relied on Farah v Elias [2015] NSWSC 1417, in which Harrison J, while accepting that where there has been no hearing on the merits, the appropriate order is that there is no order as to costs, but said that in some cases a court might be able to conclude that one of the parties had acted so unreasonably that the other party should obtain the costs of the action. Farah, however, dealt with costs in the Supreme Court, which are governed by s 98 of the Civil Procedure Act 2005, not by the more restrictive provisions of s 60 of the CAT Act.
The usual position in this tribunal has been that where there has been no hearing of the matter on the merits, the tribunal cannot try a hypothetical action between the parties to determine the question of costs. In Fitzpatrick, [54] - [55], Verick SM had this to say about the proper approach to costs where there has been no hearing on the merits: 54 The real difficulty with this contention is that the matter was not heard by the Tribunal and what counsel was seeking to establish was a hypothetical basis on which for the Tribunal now to conclude that the Applicant's case was simply not tenable and lacking in substance. Counsel submitted that, because various industrial developments had occurred on adjoining land also owned by the Applicant, the Tribunal should conclude that the subject land was awaiting similar development. That might have been the case in the long term, but the real question of fact for determination required an objective analysis, having regard to all the facts, to determine whether the primary production activities on the subject land in the relevant years was "sufficiently substantial" and had a "significant and substantial purpose or character". This exercise required a very careful examination of all the facts which, unfortunately, were not all before the Tribunal. 55 I agree with counsel for the Applicant that "where there has been no hearing on the merits, the Tribunal is not able to have regard, as is required by s 60(3)(c), to the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law". I think, Lai Qin, cited by counsel in support of this submission, confirms that it is not the function of a Tribunal "on costs application - in most cases at all events - to make a prediction as to the outcome of a hypothetical case". As suggested in Lai Qin by the High Court, this is the general rule. In some cases, where the facts are brief and not in dispute, the matter can be considered on the "papers". But this was not such a case. In this matter there was a great volume of evidence including several expert reports on various aspects of the land. Against that background, the Tribunal was, in any case, really not in a position to determine in a conclusive manner whether the Applicant's claim had no tenable basis in fact or law or lacking in substance.
In this case also, the tribunal is not in a position to determine conclusively whether the respondent's claim had no tenable basis in fact or law or was lacking in substance. As the respondent pointed out, ultimately the applicant's costs application under s 60 is entirely premised on the proposition that her interpretation of s 5B was the proper construction and that the respondent's prospects in the proceedings were "always destined to fail" or alternatively, "were remote at best". In the absence of judicial or tribunal consideration of s 5B, it could not be said that the applicant was almost certain to have won the case had it been tried. The tribunal cannot now determine those matters by means of a costs application. To do so would deny the respondent a reasonable opportunity to appear and present his case. "A reasonable opportunity in this instance," Mr Berkmann submitted, "would involve a hearing on the merits involving the construction of s 5B of the LTA for the first time, and potentially testing the credit of the applicant" (exhibit R3, para 80).
Fitzpatrick also offered guidance about the relevance of late withdrawal on the issue of costs: 58 The final basis on which the Chief Commissioner placed some reliance was the late withdrawal of the application by the Applicant. This was a matter, the Chief Commissioner submitted the Tribunal was required to take into account when considering any other matter the Tribunal considers relevant pursuant to s 60(3)(g). The Tribunal notes with a great deal of interest that matters set in s 60(a) to (f) relate to the procedural aspects of proceedings before the Tribunal but make no mention of withdrawals or settlement of applications. 59 On one view, a withdrawal of a claim or settlement of a claim would, in a real sense, lead to a just, quick and cost effective resolution of the matter. I agree with the submission of the Applicant that the "Applicant's withdrawal not only saved the Chief Commissioner considerable costs but also gave the Chief Commissioner the result he sought". I also think that to award costs merely on the late withdrawal of a matter would create a precedent to encourage matters to be finalised by a full hearing rather than resolution by way of a settlement or a withdrawal of an application.
"Most tellingly however," the applicant also contended, "it is the fact that the Respondent conceded the exemption just over two business days before the hearing, purportedly because the Applicant's Affidavit discharged her onus whereas the Statutory Declaration did not, when the only basis for doing so in terms of the construction of section 5B, was if the construction advocated by the applicant was the correct one". The respondent's choices were not, however, limited in that way. There could have been another perfectly proper reasons for the decision to concede the objection.
The respondent's concession on the application of s 5B gave the applicant the result she sought and led to the just, quick and cost-effective resolution of the matter. As Verick SM pointed out, awarding costs on the basis of late resolution would provide an incentive for finalizing matters by a full hearing rather than by settlement or withdrawal.

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