THE COMMISSIONER AS A LITIGANT
26 In considering this matter, we note the observations of the majority (McHugh, Gummow, Callinan and Heydon JJ) in Australian Communication Exchange Ltd v Deputy Commissioner of Taxation (2003) 201 ALR 271 at 281 where their Honours observed, in connection with an appeal against the Commissioner's disallowance of an objection, that:
This remains civil litigation between parties who have identified the issues upon which they are joined.
27 That the Commissioner must discharge his duties in accordance with law is beyond doubt. That he should do so in a way which is transparent and consistent is also beyond doubt. There can be no challenge to the appropriateness of his giving directions to his staff as to the ways in which they should address issues which arise in the administration of the various acts of which he has the administration. We do not reject out of hand the proposition that policies and procedures prescribed for use in the Australian Taxation Office may, in an appropriate case, inform any exercise by the Court of its discretion as to costs, whether that be the general discretion under s 43 of the Federal Court Act or that conferred by O 23 of the Rules of Court.
28 It does not follow that the Commissioner may, simply by referring to such policies and procedures, escape the Court's scrutiny of his conduct of litigation, including his conduct in refusing to accept offers of settlement. Once the Court's jurisdiction is engaged the Commissioner becomes a litigant, subject to s 64 of the Judiciary Act, the provisions of the Federal Court Act and the Rules. His conduct is to be judged by reference to all relevant circumstances including, in an appropriate case, his policies and procedures. We accept that in an appropriate case, the public interest may be better served by having the Court decide a case which has wider ramifications, rather than settling it upon the basis of purely commercial considerations. Despite the Commissioner's frequent references to this proposition, it seems not to have applied in the present case. His response to the Taxpayers' request for funding suggests otherwise.
29 We accept that the Commissioner was obliged to deal with the appeals transparently and in accordance with general practice. It does not follow that he was entitled to persevere in the prosecution of the appeals in the face of reasonable offers of settlement. The decision at first instance involved substantial questions of fact, the resolution of which involved the credibility of witnesses. In those circumstances the Commissioner faced substantial problems in any appeal. He should have taken those problems into account in the course of considering the Taxpayers' offers. There is no evidence that he did so.
30 As we have said, in considering the Commissioner's conduct, it may well be appropriate to take into account any relevant policies or procedures. However he has not identified any particular aspect of his policies and procedures as relevant for present purposes. Rather, he impliedly asserts that the Court should simply accept that he properly decided that it was inappropriate to accept any of those offers, on the basis of his policies and procedures, without any real explanation as to why that was the case.
31 To the extent that any particular point was made concerning the offers, it was that they were not really attempts to negotiate. The submission seems to depend upon considerations of the kind addressed by the Full Court in Sagacious Legal Pty Ltd v Westfarmers General Insurance Ltd [2011] FCAFC 53. The case deals with the proposition that in some circumstances, an "offer" may properly be characterized as "in substance a tactical offer aimed to put pressure on the appellant without offering any true compromise", and that such an offer should not be treated as being an offer for the purposes of either O 23 or a Calderbank order. We have difficulty in seeing the validity of such an approach. By definition, the question only arises where an offer turns out to be more favourable to the offeree than is the eventual litigated outcome. Courts expect that parties will make realistic assessments of their prospects and act accordingly. Any offer should be based upon such an assessment and assessed by the offeree on the same basis. If one party makes an assessment which turns out to be accurate, that party should generally have the benefit of O 23, unless some factor points to a contrary outcome. Although, in the case of a Calderbank offer, the focus may be slightly different, that difference will generally be more apparent than real.
32 A negotiation will generally start with an offer. It will only proceed if there is a counter-offer. We see no basis for distinguishing between "tactical" and "real" offers. The Taxpayers were not obliged to establish that the offers were reasonable, or that the Commissioner ought to have accepted one or other of them. We infer from the fact that the ultimate outcomes of the appeals were less favourable to the Commissioner than was any of the offers, that it was unreasonable for him to reject them, at least in the absence of any countervailing consideration. The Commissioner submits that any offer had to be "substantial", presumably in comparison to the relevant assessment. That submission lacks any factual or legal foundation.
33 Two other points require comment. First, the Commissioner submits that something hangs upon the fact that the appeals could only be disposed of by orders of the Court, and that the Commissioner could not be seen to be seeking such orders in view of the position which he had adopted concerning the appeals. This submission assumes that the Commissioner was not obliged to take into account the decision at first instance and, in particular, the adverse findings as to credibility and the findings of fact which he had to displace in order to be successful on appeal. Secondly, he submits that some difficulty arose out of the fact that the assessments stood until he varied them. This submission ignores the fact that the Court had ordered that the objection decisions be set aside and the objections allowed. In those circumstances, subject only to successful appeals, it was for the Commissioner to amend the assessments, not to pretend that they were still valid.
34 A question arises as to which of the offers should be treated as operative for the purposes of O23. We see no reason why the Taxpayers should not have the benefit of the offers made on 12 February 2010.
35 Pursuant to O 23 r 11(6), each Taxpayer is entitled to an order that the Commissioner pay his or her costs of the relevant appeal, incurred up to 11.00 am on 13 February 2010 on a party and party basis. Each taxpayer is also entitled to an order that the Commissioner pay his or her costs in respect of the relevant appeal, incurred after that time, taxed on an indemnity basis.
36 As to the Calderbank offers, it is not necessary that we make any order in relation to them.
37 In the circumstances there will be orders as indicated above.
I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Dowsett, Edmonds and Gordon.