Chevron Australia Holdings Pty Ltd v Commissioner of Taxation

JUDGE: ROBERTSON J DATE OF ORDER: 26 NOVEMBER 2015 WHERE MADE: SYDNEY

1. The applications be dismissed.
2. Leave be refused to the respondent to rely on the affidavit of Stephen John Jones sworn 19 November 2015.
3. The applicant's application to vacate order 2 made on 14 March 2014 that the costs of the directions hearing on 12 March 2014 be costs in the cause and, in lieu thereof, the respondent pay the applicant's costs of and incidental to that directions hearing, be refused.
4. Each party bear their own costs of the interlocutory application heard on 27 June 2014.
5. The applicant's application to vacate order 3 made on 18 September 2014 that the costs of the interlocutory application heard on 11 September 2014 be costs in the cause and, in lieu thereof, the respondent pay the applicant's costs of and incidental to that application, be refused.
6. The respondent bear his own costs in relation to the evidence of Mr McCormick.
7. The applicant otherwise pay the respondent's costs, as agreed or taxed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 569 of 2012

JUDGE: ROBERTSON J DATE: 26 NOVEMBER 2015 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 These reasons concern costs and the final orders to be made to give effect to my reasons for judgment in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 4) [2015] FCA 1092. 2 In delivering those reasons for judgment on 23 October 2015 I directed as follows: 1. Within 21 days, the parties bring in agreed short minutes to give effect to these reasons. Those short minutes are also to deal with costs. 2. Failing agreement, within a further 7 days the parties are to file the competing orders for which they contend and any written submissions in support, the submissions on each side to be limited to 3 pages. 3 The parties agreed that, to give effect to my reasons, each of the applications should be dismissed. The parties did not reach agreement on the question of costs, although, subject to four matters, the applicant accepted that it should pay the respondent's costs, as agreed or taxed. 4 The four outstanding costs issues were: the costs of the directions hearing of 12 March 2014; the costs of the interlocutory application heard on 27 June 2014; the costs of the interlocutory application heard on 11 September 2014; and the costs relating to expert evidence. I consider each of these in turn. 5 I first note the applicant's reliance on Queensland North Australia Pty Ltd v Takeovers Panel (No 2) [2015] FCAFC 128 for the proposition that "the event" is not a reference to the overall outcome of the case but to success or failure on individual issues. However, while the Full Court noted that historical meaning of the proposition that costs should "follow the event", their Honours, at [16], said that in this Court the expression had been used to describe an award of costs based on the overall outcome, rather than success or failure on individual issues. Nevertheless, I accept that s 43(2) of the Federal Court of Australia Act 1976 (Cth) confers a wide discretion and, by ss 43(3)(b) and (c), the Court may "make different awards of costs in relation to different parts of the proceeding" or "order the parties to bear costs in specified proportions". By s 43(3)(e), the Court may "award costs in favour of or against a party whether or not the party is successful in the proceeding". These provisions make explicit what was already implicit in the breadth of the Court's discretion.

The directions hearing of 12 March 2014 6 On 14 March 2014, I ordered that the costs of the directions hearing on 12 March 2014 be costs in the cause. The applicant now submitted that in the interests of justice that order, order 2, should be vacated and in lieu thereof the respondent pay the applicant's costs of and incidental to the directions hearing on 12 March 2014. The applicant submitted that ultimately the respondent was unsuccessful on the issues of the property acquired under the international agreement being denominated in USD and, if the property in fact acquired was AUD, the statute permitting the respondent to substitute property denominated in USD. 7 Having reviewed the reasons I then gave and the orders I then made, Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2014] FCA 230, and in light of the course of the trial and the final outcome of the proceedings, in my opinion, the appropriate costs order for that directions hearing is that the costs be costs in the cause. I refuse the applicant's application to vacate order 2 made on 14 March 2014.

The interlocutory application heard on 27 June 2014 8 The parties were agreed that each party should bear their own costs of the interlocutory application heard on 27 June 2014: Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 2) [2014] FCA 707. I shall so order.

The interlocutory application heard on 11 September 2014 9 An interlocutory application was heard by Edmonds J on 11 September 2014 and concerned the applicant's application that two witnesses called by the applicant should be granted leave to give their evidence by videolink: Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 3) [2014] FCA 999. That leave was granted. Order 3 made by Edmonds J on 18 September 2014 was that the costs of the application be costs in the cause. The applicant now submitted that the interests of justice required that that order should be vacated and in lieu thereof the respondent pay the applicant's costs of and incidental to that interlocutory application. 10 Having reviewed the reasons of Edmonds J and in light of the course of the trial and the final outcome of the proceedings so far as concerned the evidence of those two witnesses, Ms Taherian and Ms Silberztein, in my opinion, the costs order made by Edmonds J was appropriate. I refuse the applicant's application to vacate order 3 made on 18 September 2014.

The costs relating to expert evidence 11 The applicant submitted that each party should bear their own costs relating to expert evidence that were incurred in the proceedings. 12 The applicant submitted that the respondent's contention that arm's length parties would have transacted in USD rather than AUD was said to be supported by the evidence of Mr Gaskell, Dr Horst and Professor Boymal, called by the respondent. It was in response to the issue of the currency of the loan that the applicant put on evidence from Mr Callaghan, Mr Wasow, Mr Rowland, Dr Becker, Dr Webber, Professor Walker and Ms Silberztein and further evidence from Mr Dalzell and Mr Lewis. Ultimately, the applicant submitted, the respondent was unsuccessful on both these issues: see [6] above. The applicant submitted that the respondent also failed in certain other contentions to which the applicant responded by expert evidence. In the circumstances and given the extent of the evidence filed in relation to these issues, the applicant submitted, the order as to costs should reflect the degree of success attained. It was also relevant to consider how much time of the hearing was taken up with evidence and submissions relating to those issues on which the respondent, the ultimately successful party, failed. The applicant also submitted that although the Court found that the applicant had failed to show that the amended assessments were excessive, none of the bases on which the respondent sought to support his assessment, set out at [498] of Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 4), was accepted by the Court. Further, none of the expert evidence filed by the respondent was of utility to the Court. 13 The respondent submitted that all of the applications were to be dismissed and costs should follow the event. This was not a case in which the applicant had been partially successful. There were no special circumstances warranting departure from the usual position for the costs of the respondent's expert evidence. This case did not involve any of the circumstances, described in Dal Pont, GE, Law of Costs (3rd ed, LexisNexis Butterworths, 2013) at [8.38]-[8.60] in which a successful party was more likely to pay its own costs. The respondent submitted he relied on fewer experts (7 vs 13) and filed fewer expert reports (21 vs 39) than the applicant. The respondent noted that he did not rely on the evidence of Mr McCormick and would not claim his costs. To the extent that the Court found some of the respondent's expert evidence to be of limited or no utility, the respondent submitted that similar findings were made with respect to the applicant's experts. It was not unreasonable or inappropriate for the respondent to prepare his expert evidence. Although some of the respondent's arguments were not accepted, these were neither discrete and severable issues nor coextensive with the expert evidence. It was not appropriate to deal with costs on an issue by issue basis. The respondent's arguments were not unreasonably raised. A party should not be dissuaded from canvassing reasonable arguments, nor should costs determinations be a "nit-picking exercise". Apportionment was even less appropriate where it was the respondent who had been successful. It would be inappropriate and unjust for the costs order against the applicant to exclude the respondent's expert evidence. 14 Turning to consider these submissions, the discretion under s 43(2) of the Federal Court of Australia Act is of course a wide one and includes the power to look at issues run in a case differentially and to make an order otherwise than that the loser pays all costs: see Evans Deakin Pty Ltd v Sebel Furniture Ltd [2003] FCA 282 at [5]; Professor Dal Pont's Law of Costs at [8.10]. See also [5] above. 15 In my opinion, however, this case does not merit apportionment of costs. Although I do not automatically equate the respondent Commissioner with an ordinary litigant as respondent, as appears to have been submitted by the respondent Commissioner, since it is his assessment which commences the process (compare Evans Deakin at [7]), the respondent Commissioner succeeded completely in terms of the final orders. In my opinion, in light of the applicant's onus of proof, see Taxation Administration Act 1953 (Cth) s 14ZZK, it is not to the point that none of the bases put forward by the respondent Commissioner as set out at [498] of Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 4), was accepted: see [12] above. The case was a complex one, both factually and legally, and the particular issues the respondent raised were not unreasonably raised. In my view, none of the particular issues raised were sufficiently distinct and severable from the other particular issues so as to warrant apportionment. Indeed, in my opinion, the principal issues remained the application of s 136AD(3) of the Income Tax Assessment Act 1936 (Cth) as to whether the amount of the consideration in respect of the acquisition exceeded the arm's length consideration, and, alternatively, whether the applicant got a transfer pricing benefit within s 815-15 of the Income Tax Assessment Act 1997 (Cth). As was observed by a Full Court (French, Kiefel and Mansfield JJ) in Australian Trade Commission v Disktravel [2000] FCA 62 at [5], the judgment as to apportionment is in the end an evaluative one. Since, in my opinion, the particular issues raised were not sufficiently distinct and severable and the proceeding was not unduly prolonged by virtue of the parties' expert evidence which I ultimately found was not useful, I also conclude that it is not appropriate to order that the respondent Commissioner bear his own costs relating to expert evidence. That expert evidence was not unreasonably adduced. 16 Subject to what I have written above, in this case the costs should follow the event. 17 For completeness, I refuse leave to the respondent to rely on the affidavit of Stephen John Jones sworn 19 November 2015. I do not regard it as relevant. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson.