Divas Beverages Holdings Ltd v Commissioner of Taxation

1. The respondent pay the costs of the applicant, such costs to be taxed in default of agreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

DAVIES J: 1 On 27 April 2018 I published reasons for decision in this matter: Divas Beverages Holdings Ltd v Commissioner of Taxation [2018] FCA 576. Divas succeeded on its claim that grape concentrate VKAT and VKAT Raspberry are "grape wines" within the statutory meaning of that expression as defined in s 31-2 of the A New Tax System (Wine Equalisation Tax) Act 1999 (Cth) ("WET Act"). However, Divas did not succeed on its claim that liquid sugar VKAT and VKAT Raspberry are "grape wines" within the statutory meaning of that expression as defined in s 31-2 of the WET Act or "grape wine products" within the statutory meaning of that expression as defined in s 31-3 of the WET Act. The parties are in dispute in respect of the appropriate costs order that should follow. 2 Divas contended that there should be a costs order in its favour because it was largely successful in its application and the time spent in arguing at the hearing whether liquid sugar VKAT was "grape wine" or a "grape wine product" was insignificant. The Commissioner, on the other hand, argued that the parties had an equal measure of success at the level of the individual claims, the parties were both successful on a number of discrete issues and, it was argued, substantial parts of Divas's evidence was either not relied on by Divas or struck out by the Court. Accordingly, it was submitted that each party should pay 50% of the other's costs, which would be reflected in a "net order" that there be no orders as to costs. 3 Under s 43 of the Federal Court of Australia Act 1976 (Cth) the Court has an unfettered discretion to award costs, subject to the requirement that the discretion be exercised judicially: Hughes v Western Australia Cricket Association (Inc) [1986] FCA 382. Ordinarily, costs will follow the event but it is well accepted that in exercising the discretion to award costs the Court may have regard to the issues in respect of which each of the parties has been successful and apportion costs in that way: Shord v Commissioner of Taxation (No 2) [2018] FCAFC 27 at [18] (Siopis and White JJ). 4 However, I am not persuaded by the Commissioner's submissions that this is a case where costs should be apportioned on an issues basis or indeed for any other reason. Whilst the question of whether liquid sugar VKAT fell within the statutory terms was a separate question for determination from whether grape concentrate VKAT fell within the statutory terms, the primary focus of the argument at trial concerned the stage four process in the manufacture of the grape concentrate VKAT and the liquid sugar VKAT. The Commissioner was unsuccessful on its argument. Furthermore, some portion of the proceeding was taken up with the Commissioner's contention that low sugar juice was not a product derived solely from grapes for the purposes of the definition of "grape wine". The Commissioner was unsuccessful on that issue also. As Divas correctly pointed out, both the evidence and argument on liquid sugar VKAT occupied only a very small part of the trial. Accordingly, I do not consider it appropriate to apportion costs on an issue basis, nor do I consider that the fact that parts of Divas's evidence was either not relied on by Divas or struck out by the Court justifies a different order as to costs. It is not apparent that such evidence unnecessary occasioned significant costs for the Commissioner in relation to the case that it presented. 5 As Divas was substantially successful, costs should follow the event in the ordinary course. I certify that the preceding five (5) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.