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[2026] NSWSC 718
Supreme Court of NSW
2026-05-29
Muston J
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Deputy Commissioner of Taxation v Robert Healy; Deputy Commissioner of Taxation v Helen Healy [2026] NSWSC 718
Hearing dates: 29 May 2026
Date of orders: 29 May 2026
Decision date: 29 May 2026
Jurisdiction: Common Law
Before: Muston J
Decision: For each proceeding:
(1) The proceedings are dismissed.
(2) The defendant is to pay the plaintiff’s costs of the proceedings up to and including 24 January 2024.
(3) Subject to order 4, I otherwise make no order as to costs in the proceedings.
(4) The defendant is to pay the plaintiff’s costs of and associated with this costs application.
Catchwords: COSTS — question of costs of proceedings following determination of Notices of Objection — where defendants’ rejection of plaintiff’s repeated offer found to be unreasonable — where plaintiff was also unsuccessful in relation to at least a portion of the claim for costs
Legislation Cited: Civil Procedure Act 2005 (NSW) ss 56, 98(1)
Income Tax Assessment Act 1936 (Cth) s 175A(1)
Taxation Administration Act 1953 (Cth) Div 3 Pt IVC
Uniform Civil Procedure Rules 2005 rr 42.19, 42.20
Cases Cited: Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32
Calderbank v Calderbank [1975] 3 WLR 586
Federal Commissioner of Taxation v Ornelas [2016] FCA 457
Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274
Nadilo v Eagleton [2021] NSWCA 232
One Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270
Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6
Category: Costs
Parties: Deputy Commissioner of Taxation (Plaintiff)
Robert Healy (Defendant in 2023/217229)
Helen Healy (Defendant in 2023/221686)
Representation: Counsel:
D Olthof (Plaintiff) (solicitor advocate)
J Nixon (Defendants)
Solicitors:
Craddock Murray Neumann Lawyers (Plaintiff)
EY (Defendants)
File Number(s): 2023/217229; 2023/221686
Before me are two separate proceedings commenced by the Deputy Commissioner of Taxation against Robert Healy and Helen Healy respectively. Each was commenced in July 2023 and sought to recover from the two defendants very substantial tax related liabilities which were — when the proceedings were commenced — payable by each of them to the Commonwealth of Australia and recoverable by the plaintiff.
It is now common ground between the parties that the tax debts claimed in the proceedings have been extinguished and that both proceedings should be dismissed. All that remains is a dispute as to what costs orders — if any — should be made in each proceeding.
The plaintiff seeks an order that the defendants pay his costs of both proceedings. The defendants say that the plaintiff should pay their respective costs of the proceedings, on an ordinary basis until 5 April 2024 and, thereafter, on an indemnity basis.
The factual circumstances underpinning this dispute are largely uncontroversial.
The defendants were required to lodge income tax returns for the years of income ending 30 June 2009 and 30 June 2010 by 2 November 2009 and 1 November 2010 respectively. For reasons which are not relevant to the determination of the issues before me, these tax returns were not lodged until 24 October 2022.
On 31 October 2022, Notices of Assessment were issued to each defendant in response to the returns they had lodged. The income tax payable under these Notices was assessed in accordance with the information which had been provided by the defendants in their tax returns. The amounts due under those notices were:
In the case of Mr Healy, $3,833,564.55.
In the case of Mrs Healy, $3,833,564.00.
By 7 July 2023, the defendants had not paid the sums specified in the Notices of Assessment. The proceedings were commenced against each of them by the plaintiff.
In August 2023, the defendants filed defences in their respective proceedings. In them, they admitted that the Notices of Assessment had been served on them but “did not admit the validity of the income tax assessed”.
In October 2023, Mr Healy received advice from his and Mrs Healy’s solicitors, EY, to the effect that the tax returns which had given rise to the Notices of Assessment had been prepared incorrectly.
On 30 October 2023, EY wrote to the plaintiff and informed him of what it considered to have been the error in the preparation of the relevant tax returns. It was suggested at that time that a correction of this error would result in the defendants’ taxable income for the relevant financial years being reduced to nil. EY foreshadowed that the defendants would lodge Notices of Objection in relation to the income tax returns for these financial years pursuant to the rights available to them under s 175A(1) of the Income Tax Assessment Act 1936 (Cth) and Division 3 of Part IVC of the Taxation Administration Act 1953 (Cth).
On the same day, the defendants lodged a separate request that the plaintiff exercise his discretion to remit the general interest charge (GIC) imposed in respect of their income tax liabilities for the relevant financial years. This request identified certain circumstances which, it was said, amounted to significant hardship justifying a favourable exercise of the discretion to relieve them of this additional liability.
On 21 November 2023, EY provided draft copies of the defendants’ Notices of Objection to the plaintiff and on 28 November 2023 again wrote to the plaintiff outlining the basis for the defendants’ Notices of Objection and concluding that, if accepted, the defendants’ assessable income in the relevant financial years was nil.
On 28 November 2023, EY sent an email to the plaintiff again outlining the basis of the defendant’s objections and noted:
“We think it would assist both our clients and the Commissioner if we could convene a meeting in the next week or so to discuss the matters raised in this email and the appropriate course for our clients in lodging the Notices of Objection with one of your senior officers.
In the meantime, the Proceedings are subject to a timetable which will see the parties return to Court in early February 2024. Obviously, in the event that the notices of Objection are allowed by the Commissioner then the liability the subject of the Proceedings and any GIC would be reduced to $nil.
As part of any discussion with you, we would also like to consider the options available to both the Commissioner and our clients to see if all the issues between them can be resolved in the most expeditious timeframe possible on mutually acceptable terms.”
On 22 December 2023, the defendants lodged their Notices of Objection under Div 3 of the Taxation Administration Act seeking a review of their assessments for the relevant financial years; as had been foreshadowed in EY’s 30 October 2023 letter.
On 24 January 2024, the defendants provided the plaintiff with detailed submissions in support of their Notices of Objection.
While there is no suggestion that the outcome of any decision to be made on the defendants’ Notices of Objection was clear upon receipt of these submissions — and I note that later correspondence suggests that material continued to be provided by the defendants to the plaintiff in relation to the arguments underpinning them — it must have been clear to the plaintiff upon receipt of these submissions that it was at least arguable that the defendants’ tax liability for the relevant financial years could ultimately be reduced to nil.
Nevertheless, on 2 February 2024, the plaintiff proceeded with an earlier filed Notice of Motion seeking leave to amend his statement of claim to include a claim in each proceeding to recover GIC which — if the original Notices of Assessment were correct — was payable by the defendants. This had the effect of increasing the amount claimed against each of them to:
In the case of Mr Healy, $12,960,367.77.
In the case of Mrs Healy, $12,981,452.69.
On 16 February 2024, EY again wrote to the plaintiff. This letter noted:
“We also assume that you are being kept appraised of the developments in the… Proceedings… We wanted to update you on a number of aspects of the matter and make some suggestions which may provide benefit to our clients and the Commissioner in the context of avoiding unnecessary cost and expense by both parties in the further conduct of the Proceedings and other related matters.
…
Our clients are keen to ensure that the prompt determination of the Objections given the financial and mental strain they are having to cope with on a daily basis. Our clients have asked that we convene a meeting with you as soon as possible to discuss the matters raised in this letter. It is the express wish of our clients that Mr Bob Healy and his son, Mr Simon Healy, are present at this meeting.
We consider a priority agenda item for discussion is our clients’ repeated requests seeking a stay or adjournment of the proceedings, to facilitate the determination of the Objection that is before the Commissioner. We note that a stay or adjournment to allow this process to be completed is just and fair in the circumstances and in no way prejudices the Commissioner’s position in the Proceedings.
Obviously, we are aware that the Supreme Court has granted our clients the option of deciding whether to formally bring an application seeking a stay of the proceedings. However, given the likely additional time and financial resources which would need to be devoted by our client to such a course of action and the likely cost of contesting it before the Court, it makes far better sense for the parties to determine if such a stay of the proceedings can be agreed by consent now.”
On 11 March 2024, solicitors acting for the plaintiff proposed to EY that the proceedings be discontinued pending the outcome of the defendants’ Notices of Objection. This discontinuance was to be subject to a number of conditions, relevantly including an agreement by each defendant to pay $8,000 on account of the plaintiff’s costs. This offer was rejected by the defendants.
On 28 March 2024, the defendants proposed to the plaintiff that the proceedings be discontinued. This proposal was also subject to a number of conditions, relevantly including that the parties each bear their own costs of the proceedings. This offer was not taken up by the plaintiff.
On 11 April 2024 the Court directed that the defendants were to file any application for a stay of the proceedings by 2 May 2024. That application was filed. It was accompanied by an affidavit sworn by Mr Healy in which he provided a detailed account of the personal hardships which he had faced and the impact that the proceedings were having upon him.
On 21 June 2024, the Court ordered — ultimately by consent — that the proceedings be stayed pending the determination of the defendants’ Notices of Objection.
On 29 May 2025, the defendants’ Notices of Objection were determined. The outcome was favourable to the defendants; each was found to have no liability to pay income tax for the relevant financial years. All parties agreed that from that point onward the only real issue remaining to be determined in the proceedings was what cost orders — if any — should be made. Despite this fact, the proceedings continued.
On 6 August 2025 solicitors acting for the plaintiff wrote to EY and conveyed an offer on behalf of the plaintiff that the proceedings be dismissed with each party to bear their own costs. This offer was expressly stated to have been made in accordance with the principles in Calderbank v Calderbank [1975] 3 WLR 586. The offer was not accepted by the defendants.
The plaintiff’s offer was repeated in an email sent by his solicitors to EY on 10 March 2026. Once again, the offer was not accepted by the defendants.
The principals to be applied in determining applications such as this are well-settled.
Both parties relied on Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6, in which McHugh J observed (at 624-625):
“In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. 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. To do so would burden the parties with the costs of a litigated action which by settlement or extracurial action they had avoided. 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. … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. ... But such cases are likely to be rare.
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 cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.”
[Footnotes omitted].
The defendants submitted that it was unreasonable for the plaintiff to have rejected their offer on 28 March 2024 to discontinue the proceedings with each party bearing their own costs. So much so, it was said, that the plaintiff should not only be ordered to pay the defendants’ costs but should also be required to pay those costs on an indemnity basis from the date of that offer.
The plaintiff, on the other hand, said that it was “certain to succeed” in the sense contemplated by McHugh J. In support of this contention, the plaintiff drew my attention to the useful summary of the relevant legislative framework and its application provided by Bromwich J in Federal Commissioner of Taxation v Ornelas [2016] FCA 457 at [7].
The defendants did not seriously contest this issue, properly acknowledging that the legislative regime gives effect to Parliament’s policy objective of favouring the revenue by permitting the recovery of taxation debts “even where those debts are challenged.” Nevertheless, the defendants pointed out that it always remained open to parties in the position of the defendants to seek a stay of the proceedings, as ultimately occurred in this case.
Given the apparent strength of his position, it was said by the plaintiff that he ought to recover his costs of the proceedings.
While the matters referred to in Lai Qin are clearly pertinent to the exercise of the wide discretion conferred by s 98(1) of the Civil Procedure Act 2005 (NSW), they are not determinative: Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 at [87]. Also relevant are Uniform Civil Procedure Rules 2005 (“UCPR”) rr 42.19 and 42.20, which provide:
42.19 Proceedings discontinued
(1) This rule applies to proceedings that are discontinued by the plaintiff, as referred to in rule 12.1.
(2) Unless the court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued.
(3) Despite subrule (2), the defendant's costs in an appeal to the District Court under section 91 of the Children and Young Persons (Care and Protection) Act 1998 are not payable by the plaintiff unless the court finds there are special circumstances to justify an order for their payment by the plaintiff.
42.20 Dismissal of proceedings etc
(1) If the court makes an order for the dismissal of proceedings, either generally or in relation to a particular cause of action or in relation to the whole or part of any claim, then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed.
(2) If the court makes an order striking out a defence, either generally or in relation to a particular cause of action or in relation to the whole or part of any claim, then, unless the court orders otherwise, the defendant must pay the plaintiff's costs of the proceedings in relation to those matters in respect of which the defence has been struck out.
These rules reflect the general principle, referred to by McHugh J in Lai Qin, that a successful party will ordinarily be entitled to their costs. They impose, upon a party seeking to discontinue, an onus to make an application in respect of costs if it does not propose to pay the costs of the other parties and demonstrate why the Court should depart from the ordinary course: Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54].
While neither rule creates any presumption regarding the payment of costs in circumstances such as those which have arisen in these proceedings, they, like the other considerations discussed in Lai Qin, remain a relevant, but not determinative, consideration: Fordyce at [84].
In seeking to balance analogous considerations in One Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 at [6], Burchett J observed:
“… it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court’s discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs. In Ex Parte Lai Qin, McHugh J was careful to state (at 624) that the principles with which he was concerned were those that ‘govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means’.”
Burchett J’s observations in One Tel were cited with approval by Brereton JA (with whom Meagher JA agreed) in Nadilo v Eagleton [2021] NSWCA 232 at [12]; they are particularly pertinent to the exercise of the costs discretion in these proceedings.
In the circumstances of this case, it was not unreasonable for the plaintiff to have commenced the proceedings. At that time, he had an unanswerable claim to recover the unpaid tax liabilities referred to in the defendants’ assessments.
Nothing in the defendants’ 28 March 2024 offer detracts from this. Accordingly, the rejection of that offer does not alone stand in the way of the plaintiff recovering his costs of the proceeding; at least prior to the date on which the offer was received and rejected. I also do not consider there to have been anything inherently unreasonable in the plaintiff’s refusal to — in effect — surrender any claim he might have had to costs incurred prior to 28 March 2024 in connection with the proceedings. Had the defendants’ Notices of Objection been resolved favourably to the plaintiff, his commencement of the proceedings would have been wholly justified and there is no obvious reason why he ought to have been deprived of the costs he had, to that date, incurred in connection with them.
However, in the particular circumstances of this case, I do consider the lodgement of the defendants’ Notices of Objection and their particular personal circumstances to have a bearing on the exercise of the Court’s discretion to award costs.
It was entirely appropriate for the plaintiff to have consented to a stay of proceedings pending the determination of the defendants’ Notices of Objection. In my view this should have occurred sooner than it did.
EY had been proposing that the proceedings be stayed pending the outcome of the defendants’ Notices of Objection for some time. Contemporaneous documents suggest that this had been raised by EY prior to 19 January 2024. It was clearly raised in EY’s letter of 16 February 2024. By this time, the plaintiff was also well aware of the basis upon which the defendants were contending — through the Notices of Objection — that they were not required to pay tax in the relevant financial years. As I have noted above, there may not have been certainty about the outcome of this dispute, but it must have been clear to the plaintiff that there was a properly arguable prospect it would succeed. If so, any additional costs incurred in connection with the proceedings by either party would clearly have been wasted.
Despite this, and for reasons which are not well explained in the evidence, the proceedings were allowed to continue. Costs were incurred by the plaintiff in connection with his application to amend his pleadings. Debate continued about the terms of a proposed discontinuance. Costs were incurred by both parties in connection with a formal application for a stay, supported by evidence, and the relief sought in that application was ultimately consented to. Save for the parties’ ultimate agreement to the proceedings being stayed on 21 June 2024, there is little about their dealings between receipt of the defendants’ detailed submissions in support of the Notices of Objection and that ultimate stay which significantly advanced the objects embodied in s 56 of the Civil Procedure Act.
Subject to one qualification to which I will return in a moment, the plaintiff should not recover his costs of the proceedings after receiving the detailed submissions provided by the defendants in support of their Notices of Objection.
As already noted, since the determination of the defendants’ Notices of Objection, the only issue which remained in these proceedings was this costs argument. In these circumstances, the defendants’ refusal of the offer made and repeated by the plaintiff since that time to bring the proceedings to an end — with each party bearing its own costs — also bears on the exercise of the court’s costs discretion.
As I have ultimately come to the view that the plaintiff should recover those of his costs which were incurred before he received the defendants’ detailed submissions on their Notices of Objection, the defendants would have been better off had they accepted the plaintiff’s offer. In my view, their failure to do so was unreasonable and has resulted in the plaintiff incurring costs in connection with this costs argument.
In these circumstances, it is my view that the defendants should pay the plaintiff’s costs of and associated with this costs application. The plaintiff does not suggest that any aspect of his costs should be paid on an indemnity basis. I similarly do not think it is appropriate to order that those costs be recovered on anything other than the ordinary basis. In reaching this view, I have had regard to the fact that the plaintiff was also unsuccessful in relation to at least a portion of the claim for costs he has made.
For these reasons, I make the following orders in each proceeding:
The proceedings are dismissed.
The defendant is to pay the plaintiff’s costs of the proceedings up to and including 24 January 2024.
Subject to order 4, I otherwise make no order as to costs in the proceedings.
The defendant is to pay the plaintiff’s costs of and associated with this costs application.
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(2006) 67 NSWLR 497
(2000) 101 FCR 548
(1997) 186 CLR 622