Commissioner for Taxation v Starbrake Holdings Pty Limited

1. The application be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MCKERRACHER J: 1 In this matter, the applicant now orally seeks dismissal of its application to review a decision of the Administrative Appeals Tribunal (AAT) (Trustee for the Starbrake Holdings Trust & Gucce Holdings Pty Ltd and Commissioner of Taxation (Taxation) [2015] AATA 661) under s 39B of the Judiciary Act 1903 (Cth). The AAT decision was an interlocutory decision staying certain applications for review of taxation objections pending determination of other civil proceedings, but with open liberty for the parties to apply. The respondents initiated the stay application in the AAT. There was no opposition to adjournment of part of the proceedings, but there is and was opposition to a stay of those proceedings. 2 The decision of the AAT to stay those proceedings has now fallen away because, as events have transpired and further material has come to light, the respondents made clear that they would not seek to have the stay orders continued. That decision was made on or about 17 December 2015. Consequently, the applicant notified the Court that it would no longer need to proceed with its application for review. That has saved the Court and the parties time and costs, although it is important to stress that on the filing of the application seeking leave to review in this Court by the applicant on 14 October 2015, the respondents all filed submitting appearances agreeing to abide by any decision of the Court, save as to the question of costs. So at all times, the first and second respondents have wished to be heard on the question of costs. 3 As is common ground, the normal rule is that when a party discontinues, and I would suggest even more so when its application is dismissed, it should bear the costs of the other parties to whom it has imposed the burden of litigation. See my decision in Travaglini v Raccuia [2012] FCA 620. But as noted in Travaglini, and in subsequent decisions which have considered it, that rule is certainly amenable to adjustment. 4 The allocation of costs is an obvious area of judicial discretion under the provisions of the Federal Court of Australia Act 1976 (Cth), see particularly s 43. One of the occasions which may give rise to discretionary adjustment of the usual rule is where the objective of the litigation has been rendered futile by events which have occurred after commencement of the litigation. That is the position here since 17 December 2015. 5 The applicant argues that, had it continued this litigation, it would have been almost certain to succeed and should not be penalised for saving the Court and other parties to the proceedings time and costs. In fact, because it would have been almost certainly bound to succeed, it says it should have its costs on the dismissal of the application. There is some precedent for that, and, in particular, the applicant relies upon the discussion in Akiba on behalf of the Torres Strait Regional Sea Claim Group v State of Queensland (2010) 184 FCR 406 by Greenwood J. Certainly as a matter of principle, there are other cases including the frequently cited decision of McHugh J in the Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 which comments on the (rare) possibility of that principle being applied as Pincus J did in the South East Queensland Electricity Board v Australian Telecommunications Commission [1989] FCA 20. 6 But as McHugh J goes on to observe in Lai Qin (at [9]), if it appears that both parties have acted reasonably in commencing and defending the proceedings, and the conduct of the parties continues to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to costs of the proceedings. This approach, his Honour observes, has been adopted in a large number of cases, which are cited at footnote 7 to his Honour's decision. Further, I observe that there have been a good number more since his Honour's decision which was delivered in 1997. 7 In this case, it appears that it is the subsequent actions of the respondents on 17 December 2015 that have given rise to the application falling away, but no criticism is directed to that. Indeed, no criticism is raised in respect of the conduct of either party in the conduct of this litigation. It is clear that pursuing it now would be futile. I expressly accept that the conduct of the respondents throughout has been reasonable, and I also expressly accept that the conduct of the applicant has been reasonable. The real question, though, is whether I can, on the materials before me, including the applicant's substantive submissions and the decision of the AAT on which the applicant particularly focuses, reach a conclusion that the applicant would have been almost certainly bound to succeed. 8 It seems to me that it would defeat the purpose of finality of litigation, whether by dismissal, discontinuance or settlement, to conduct a mini-trial in complex matters in order to determine whether the applicant would be almost certain to succeed in a particular case. This litigation is one relatively small aspect of what would appear to be a very substantial dispute between the parties and related parties. Even in this litigation which is confined to, what is effectively, a review of an interlocutory exercise of discretion on whether or not proceedings should be stayed pending resolution of other proceedings, the applicant relies upon an affidavit which runs to some 650 pages. Accordingly, it seems to me to defeat the purpose of finality of litigation to conduct an extensive examination of that affidavit to see whether I am satisfied that there would be, effectively, no prospect of the applicant losing. 9 Although the respondents were to abide the outcome of the litigation, on today's costs claim, the respondents reserved their right to make submissions. They point to the fact that it cannot be said with a requisite degree of certainty at this stage that the AAT would be found to have erred in concluding (at [37] and [40] - [51]) that the expression 'on the cards' in the context of criminal proceedings would equate to 'a reasonable possibility' of (potentially relevant) criminal proceedings ensuing, which conclusion formed the basis of granting the stay. 10 The respondents also made the point that the general liberty to apply ordered by the AAT meant that if there were an appropriate change in circumstances, the interim stay orders could be revisited. In fact, this is just what happened. It might be argued that this was a sensible exercise of the AAT's broad discretion. 11 The applicant may well have succeeded in the substantive question on appeal before me. It may also be that the applicant had a strong case. But it seems to me, on the authorities outlined above, that before I depart from the 'usual' position referred to by McHugh J in Lai Qin to the 'rare' position where I could be satisfied that the applicant was almost certain to succeed as distinct from having a strong case, I would need to be satisfied of more. 12 There are cases where the possible outcome is much more obvious, which could lead to a conclusion as to almost certain success. I do not believe that is so in relation to this confined aspect of a much larger, complex dispute relating to both taxation and civil matters and potential criminal matters. A substantially more detailed analysis would be necessary and require a survey of all the materials which would be inconsistent with the principle of encouraging finality to litigation. I think this case falls classically within the description of McHugh J in Lai Qin, where it appears that both parties have acted reasonably in relation to the commencement and their conduct in proceedings and the litigation has been rendered futile, such that the proper exercise of the cost discretion means that there should be no order as to costs of the proceedings. 13 In submissions, the first and second respondents contended that the appropriate order was for each party to pay its own costs, save that the applicant should pay the costs of the first and second respondents in respect of today's application for costs. 14 My conclusion is that the normal order - that the discontinuing or dismissing parties should pay costs - should be varied in this instance in the manner discussed by McHugh J in Lai Qin, and I extend that to include the costs of today's application. As to the latter, in my view, the position of the applicant at the hearing today was sufficiently arguable for it to be legitimately, but not exhaustively, pursued and to do so without penalty as to costs. Accordingly, for those reasons, the order that I will make today is that the application be dismissed. That will be the sole order. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.