Deputy Commissioner of Taxation v Leaver

Solicitor for the Second Respondent/Cross-Claimant Mark J Ord, Lawyer & Consultant

Counsel for the Applicant/Cross-Respondent: Mr D McGovern SC with Dr J Jaques and Mr R A Jedrzejczyk

Solicitor for the Applicant/Cross-Respondent: Australian Government Solicitor

Counsel for the Respondent/Cross-Claimant: Mr J Hyde Page

Solicitor for the Respondent/Cross-Claimant Mark J Ord, Lawyer & Consultant

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 568 of 2015

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 576 of 2015

JUDGE: PAGONE J DATE: 23 DECEMBER 2015 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 The Commissioner seeks his costs on an indemnity basis in proceedings NSD 576 of 2015 ("the Gould proceeding") and proceeding NSD 568 of 2015 ("the Russell Associates proceeding") in which the Commissioner successfully obtained summary judgment and a strike out of claims brought either by way of defence or cross-claim: see Deputy Commissioner of Taxation v Leaver [2015] FCA 1454. The Commissioner's application for indemnity costs in the Gould proceeding is that they be paid from 31 July 2015 because on 30 July 2015 the Commissioner had written a letter to the solicitor for Mr Gould requesting a withdrawal of the defence and cross-claim and that Mr Gould consent to judgment for the Commissioner on the basis that each party bear its own costs but that an order for indemnity costs would be sought if the offer to finalise the proceeding on that basis was not accepted within 14 days of the date of the letter. The Commissioner's application for indemnity costs in the Russell Associates proceeding was that they be paid from 20 November 2015 on the basis that on 19 November 2015 a letter had been sent on behalf of the Commissioner to the solicitor for Russell Associates requesting the withdrawal of the cross-claim and consent to judgment in the Russell Associates proceeding on the basis that each party bear their own costs but that indemnity costs would be sought if the cross-claim was not withdrawn and judgment had not been consented to within 14 days of the date of that letter. 2 The Court has a discretion in deciding whether, and on what basis, to award costs: Federal Court of Australia Act 1976 (Cth), s 43. Ordinarily costs follow the event (see Hughes v Western Australian Cricket Association Inc (1986) ATPR 40-748, 48,136) and no submission has been made against the Commissioner being awarded costs against Mr Gould or Russell Associates. 3 The two letters upon which the Commissioner relied offered to forego the recovery of costs if Mr Gould and Russell Associates respectively withdrew their claims and consented to judgment. An offer to forego costs is one "that involves giving up something meaningful, real, and measurable": Uniline Australia Ltd v S Briggs Pty Ltd (No 2) [2009] FCA 920, [38]; Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53, [131]-[132]. It does not follow, however, that a refusal or failure to accept an offer to forego costs will necessarily warrant that costs be awarded on an indemnity basis. The terms of the offer in the Commissioner's letter sent on 19 November 2015 in relation to the Russell Associates proceeding was expressed in the last two paragraphs of that letter as follows: 10 For the above reasons the Commissioner requests that your client withdraw its cross-claim and consent to judgment. If it does so within 14 days from the date of this letter, the applicant will not seek a costs order against your client and is agreeable that each party bear their own costs of this proceeding. 11 The above offer should be considered an offer in line with the principles espoused in Calderbank v Calderbank [1975] 3 All ER 333. Failing acceptance of our offer, in the event that the Commissioner ultimately obtains judgment against your client, our client will seek his costs of these proceedings on an indemnity basis against your client. The Commissioner's letter sent on 30 July 2015 in relation to the Gould proceeding set out the offer in substantially the same terms, except that it sought withdrawal of the defence and cross-claim. The preceding paragraphs in both letters had contended that the matters sought to be relied upon by Mr Gould and Russell Associates respectively could not be sustained. The basis upon which the Commissioner succeeded, however, was not the one set out in the two letters. The Commissioner succeeded on the basis that the pleadings, and the material that was relied upon, had not revealed a cause of action which Mr Gould and Russell Associates had sought to allege. The Commissioner may, perhaps, also have succeeded on the basis set out in his two letters but it is not clear that he would have done so on the basis of a strike out application or summary judgment application. 4 The Commissioner's argument for indemnity costs was not based upon submissions that the Commissioner should be compensated for the costs arising from misconduct of either the taxpayers or their legal practitioners: cf Hamod v New South Wales (2002) 188 ALR 659, 665 [20]; Lowe v Mack Trucks Australia Pty Ltd (No 2) [2008] FCA 711 [6]-[8]. The discretion to order indemnity costs may also be enlivened if a proceeding has no prospects of success and it appears that the applicant, properly advised, should have known that there was no chance of success: see SNF (Australia) Pty Ltd v Ciba Specialty Chemicals Water Treatments Ltd [2015] FCA 949. The mere fact that the Commissioner was successful on a summary judgment application does not, contrary to the Commissioner's submission, demonstrate that the refusal of the Commissioner's offer was unreasonable nor that it was "manifestly hopeless": cf Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) [2002] FCA 192, [62]. There is something to be said in favour of the Commissioner's submission that costs should be awarded on an indemnity basis, but, on balance, I am not satisfied on the facts of this case that the Commissioner should be awarded costs on an indemnity basis. 5 Accordingly, in each of the proceedings the Commissioner will be entitled to costs on a party and party basis to be taxed in default of agreement. I certify that the preceding five (5) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Pagone.

Associate: Dated: 23 December 2015 Schedule No: NSD568/2015 Federal Court of Australia District Registry: New South Wales Division: General Second Respondent Russell Associates Ltd Third Respondent Balzac Investments Pty Ltd Fourth Respondent Wenola Services Pty Ltd as Trustee for the John Leaver Family Trust Fifth Respondent Leaver Funds Management Pty Ltd Sixth Respondent Leaver Holdings Pty Ltd Seventh Respondent Leaver Trading Pty Ltd Eighth Respondent Planette Thoroughbred Trading Pty Ltd Ninth Respondent Wenola Fiduciary Services Pty Ltd Tenth Respondent Wenola Pty Ltd Eleventh Respondent Leaver Estates Pty Ltd Twelfth Respondent Sophie Rhiannon Leaver Thirteenth Respondent Mirjana Leaver Fourteenth Respondent Southfields Investments Limited Fifteenth Respondent Normandy Finance and Investments Limited Sixteenth Respondent Hesley Consultants Limited