Commissioner of Taxation v Edgewater Estates Limited

whether costs should be ordered in favour of the respondents 10 In support of their application for costs, the respondents put on an affidavit of Linda Dowding, sworn in Guernsey on 21 July 2009, which contained some ten attachments. 11 Ms Dowding is an employee of Weighbridge Trust Limited of Guernsey and a director of Marble Hill Investments Limited, the third respondent in the proceedings, having been appointed a director of that company on 12 March 2007. As the affidavit indicated, she also at material times was instructed to do things on behalf of the other respondents. 12 Ms Dowding explained that on 1 June 2009, she received a notice of General Interest Charge issued by the Australian Taxation Office (ATO) dated 28 May 2009 addressed to the third respondent. There were similar notices also received in relation to the other respondents. That General Interest Charge was accompanied by a letter, dated 21 May 2009, but stamped 28 May 2009, thanking the third respondent "for lodging your 2007 income tax return" and advising that the information on which the return was based indicates that the taxpayer was now required to make Pay As You Go (PAYG) instalments against an expected income tax liability for 2009. 13 Ms Dowding says that to her knowledge the third respondent had not lodged an income tax return for 2007 in Australia and it was her view the company had no tax liability in Australia because it was not resident and had no place of business in Australia. 14 As a result, on 1 June 2009, she telephoned the ATO in her capacity as director of the company. She spoke to an employee of the ATO, who did not identify who she was. She was told that as far as the ATO records showed, Ms Dowding was not authorised to discuss tax matters on behalf of Marble Hill. The ATO officer told Ms Dowding she could not clarify any of her queries or give any information as to why such an estimate had been sent to the third respondent. She told Ms Dowding she would have to provide a letter of authority from the company. Ms Dowding told the ATO officer that she was a director of the company and in that capacity was acting on behalf of the company. The officer was insistent that she was not authorised according to the ATO records and could not discuss the matter with her. 15 Ms Dowding says she telephoned the ATO office about 20 minutes later and spoke to another person in the hope that she would find someone who would be more helpful and would provide some information as to what the situation was. The person who took her call did not identify himself. After speaking to him, she was told he would go and check the position with someone. She was left holding on the telephone but it eventually rang off. She rang back but the office had closed for the day. 16 Subsequent to this, Ms Dowding decided to write a letter to the ATO on behalf of the third respondent and each of the other respondents, which she did by letter dated 1 June 2009, in the following terms: We refer to your letter of 21st May with information regarding a possible income tax liability for 2009. We have tried to telephone the Australian Taxation Office today but could not establish any reason why this estimate has been sent to us. We have not, as stated, lodged an income tax return for 2007 in Australia and [each respondent separately referred to here] has, as far as we are aware, no tax liability in Australia. It is not resident and has no place of business in Australia. Please amend your records accordingly. 17 Ms Dowding states that at no time has Weighbridge Trust Limited, the third respondent, or herself, given any indication that the third respondent would not satisfy its tax obligations in Australia. 18 Ms Dowding adds that as a director of the third respondent, she telephoned the applicant twice on 1 June 2009 and wrote to the applicant on 1 June 2009 prior to the grant of orders in this matter. At no time did she or her employer, Weighbridge Trust Limited take steps or give instructions that any securities held with Australian brokers be sent out of Australia. 19 The Federal Court of Australia Act 1976 (Cth) s 43 provides the Court with a broad discretion to award costs in all proceedings before the Court (including proceedings dismissed for want of prosecution) other than proceedings in respect of which any other Act provides that costs shall not be awarded. 20 It is not necessary to recite authority to make the point, that the parties to these proceedings fully accept, that the discretion to award costs is unfettered. It is absolute except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on a ground unconnected with the litigation. 21 For present purposes, where the current proceeding has come to an end without a contested determination, the exercise of the Court's discretion with respect to costs is a little more complicated. 22 In general terms, circumstances such as these call for the exercise of the costs discretion in accordance with the principles which have usefully been set out in the case of Re The Minister for Immigration and Ethnic Affairs of the Commonwealth Of Australia; ex parte Lai Qin (1997) 186 CLR 622. McHugh J, in an oft quoted passage, at 624 - 625emphasised the following principles: · A successful party is prima facie entitled to a costs order. · When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. · In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. · The court cannot try a hypothetical action between the parties. · In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. · In some cases, a court may feel that although both parties have acted reasonably one party was almost certain to have succeeded if the matter had been fully tried. · If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled, or its further prosecution became futile, the proper exercise of the costs discretion will usually mean that the court will make no order as to the costs of the proceedings. This approach has been adopted in a large number of cases. 23 In this case it is not open to the Court to say that one party was almost certain to have succeeded if the matter had been fully tried. 24 The issue in this case is rather whether the Commissioner unreasonably commenced and maintained the proceedings against the respondents in all the circumstances, which is the burden of the submission made on behalf of the respondents. 25 In short, having regard to the evidence of Ms Dowding recited above, counsel for the respondent contends that the Commissioner, having issued the General Interest Charge notice and letter on 28 May 2009, putting the various respondents on notice concerning their tax liability, acted unreasonably in proceeding without further notice to obtain freezing orders in the Court on 4 June 2009. 26 The respondents say this is particularly so having regard to the fact that Ms Dowding immediately attempted to contact the ATO and find out further information in circumstances where the respondents considered they were not liable to a taxation impost. 27 Ms Dowding implies that it was unreasonable of each of the persons to whom she spoke on the telephone on 1 June 2009 not immediately to provide her with information, and that, because she was a director of the third respondent, they should have accepted her statements in that regard and provided relevant information to her. 28 She also draws attention to the fact that on 1 June 2009 she wrote to the ATO. 29 For my part, while it may have been open to the Commissioner to have placed the initiation of proceedings for freezing orders in abeyance pending some exploration of issues with a person such as Ms Dowding, on behalf of the respondents, it was in all the circumstances not unreasonable to proceed to seek freezing orders as of 4 June 2009. 30 On 4 June 2009, I held that, on the information before the Court, it was appropriate for freezing orders to go. 31 In all the circumstances, it cannot be said that the Commissioner has acted otherwise than as a model litigant should in commencing and maintaining proceedings for the freezing orders. If the Commissioner had not taken such action based on the information before him, he may well have been criticised for failing to act as a model Commissioner of Taxation. 32 In any event, I do not consider that it has been demonstrated that the applicant acted unreasonably in proceeding on 4 June 2009 to seek and obtain freezing orders. As counsel for the Commissioner submitted, even if the Commissioner had been fully aware of the approaches of Ms Dowding - something that the evidence falls well short of - then the action by the Commissioner to obtain the freezing orders would still have been justified on the basis of the information set out in the affidavit filed in support of the application for freezing orders. With those submissions I agree. 33 In these circumstances the appropriate order is, following discontinuance of the main application by the Commissioner that there be no order as to costs of the proceeding.

conclusion and orders 34 Following submissions on costs, on 23 July 2009 the Court made the following orders: 1. The proceeding is discontinued. 2. There are no orders as to costs. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.

Associate: Dated: 31 July 2009 Counsel for the Applicant: Ms LB Black

Solicitor for the Applicant: Australian Government Solicitor