Esso Australia Resources Pty Ltd v Commissioner of Taxation

1. The application is allowed in so far as it relates to the objections dated 4 July 2018.
2. The objection decisions made in response to the objections dated 4 July 2018 are set aside and replaced by decisions allowing those objections in full.
3. The application is dismissed in so far as it relates to the objection dated 21 June 2018.
4. The respondent pay the applicant's costs including reserved costs, aside from the costs of and incidental to the preparation of the affidavit of Mr Moskow dated 5 August 2022, to be taxed if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

HESPE J: 1 On 16 February 2024 I published my reasons for judgment in Esso Australia Resources Pty Ltd v Commissioner of Taxation [2024] FCA 87. 2 The parties were ordered: 1. Within 14 days, the parties file any agreed minute of proposed orders to give effect to the reasons (including as to costs). 2. If the parties cannot agree, within 21 days each party file and serve a minute of proposed orders to give effect to the reasons (including as to costs) together with an outline of submissions (of no more than three (3) pages) in support of those proposed orders. 3 The parties are agreed on the orders to be made except in relation to costs. The applicant contends that: (a) The respondent should pay the applicant's costs, including reserved costs as ordinarily costs follow the event. The applicant abandoned one issue (the Switching Fee issue) prior to trial. The amount of the fee in issue was $63,895. No apportionment is warranted given the de minimis nature of the fee and no trial time was consumed. (b) Alternatively, if recognition is to be given to the pre-trial concession on the Switching Fee issue, the respondent ought to be ordered to pay the applicant's costs less a discount of $25,000, being the approximate amount of the petroleum resource rent tax at issue in respect of the Switching Fee. 4 There were six issues agreed to be in contention. The respondent contends an apportionment should be made on the basis of those six issues. In addition to the Switching Fee issue, the respondent contends that as the issue of derivation was not considered as an alternative basis to conclude the assessments were excessive neither party should be entitled to their costs in respect of that issue. As the parties had also agreed on the outcome if the assessable property receipts issue had been determined in the Commissioner's favour, "neither party should be entitled to their costs in respect of the s 30 issue". 5 The respondent also contends that as the Court found the applicant's affidavit evidence added little to the contemporaneous documents, the costs order should have regard to the costs incurred by the respondent in relation to receiving and objecting to passages in those affidavits. 6 A useful summary of the principles regarding costs is set out in Bblood Enterprises Pty Ltd v Commissioner of Taxation [2023] FCAFC 114 at [7]: 7 The principles regarding costs are well established. It is sufficient for present purposes to refer to the following passage. In Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd (No 2) [2017] FCAFC 158, the Full Court summarised these principles at [9]-[11]: 9 Section 43(3)(e) of the Federal Court of Australia Act 1976 (Cth) provides that an award of costs may be made in favour of, or against, a party whether or not that party is successful in the proceeding. The approach usually taken is that costs follow the outcome of an appeal: see Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; see also Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [303]; Oshlack v Richmond River Council (1998) 193 CLR 72 at [66]-[68]. 10 In Queensland North Australia Pty Ltd v Takeovers Panel (No 2) (2015) 236 FCR 370, Dowsett, Middleton and Gilmour JJ, after referring to Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 and State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174, said at [11] that these decisions treat the success or failure of the relevant party as being the starting point in consideration of the question of costs, but contemplate at least three distinct categories of situation in which a successful party might be deprived of costs, or even ordered to pay the costs of the other side. These were identified as follows: One such category is where the applicant has been only partially successful in that it has not obtained all of the relief sought. The second category is where a party has succeeded in obtaining the relief sought, but has not succeeded on all bases (factual or legal) upon which it sought such relief. Of course, it is possible that a particular outcome will fall into both categories. A third category involves consideration of the successful party's conduct of the case. 11 After referring to the decision of Finkelstein and Gordon JJ in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107, Dowsett, Middleton and Gilmour JJ in Queensland North Australia then said at [18]: [Section 43 of the Federal Court of Australia Act] does not mention costs following the event. In Ruddock, Bowen Investments and Sportsbet, the Court proceeded on the basis that ordinarily, the successful party may reasonably expect to receive its costs, whether that outcome be described as costs following the "event" or otherwise. The question of costs is within the Court's discretion. As we have said, relevant factors include the extent of a party's success, the extent of its success or failure on individual issues and its conduct of the proceedings. 7 In the circumstances of the present case, I consider it artificial to view each of the six issues in isolation from each other. As the agreed orders make apparent, the applicant succeeded in relation to all but one of the objection decisions. That objection decision related to the Switching Fees. I do not consider the applicant's conduct of its case to warrant a departure from the ordinary rule. 8 The Switching Fee issue was always a de minimis issue in the context of these proceedings. In the circumstances, I consider it appropriate that the applicant should bear its own costs in respect of the preparation of the affidavit of Mr Moskow dated 5 August 2022 as that evidence appeared directed at the Switching Fee issue and was not read. Otherwise, it is appropriate that costs follow the event. 9 The following orders will be made: 1. The application is allowed in so far as it relates to the objections dated 4 July 2018. 2. The objection decisions made in response to the objections dated 4 July 2018 are set aside and replaced by decisions allowing those objections in full. 3. The application is dismissed in so far as it relates to the objection dated 21 June 2018. 4. The respondent pay the applicant's costs including reserved costs, aside from the costs of and incidental to the preparation of the affidavit of Mr Moskow dated 5 August 2022, to be taxed if not agreed. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Hespe.