Fitzpatrick Investments Pty Ltd atf for The Number One Trust v Chief Commissioner of State Revenue

Relevant principles

1. The exercise of the discretion in s 60(2) requires the Tribunal to be satisfied, first, that there exist 'special circumstances'; and second, that those special circumstances warrant an award of costs: Chan v Chief Commissioner of State Revenue [2021] NSWCATAD 266 at [76] and [80].
2. The Appeal Panel has noted that 'special circumstances' are circumstances that are out of the ordinary; they do not have to be extraordinary or exceptional: Zucker v Burbank Montague Pty Ltd [2018] NSWCATAP 135 at [37], referring also to Cripps v G & M Mawson [2006] NSWCA 84 at [60]. If the Tribunal is satisfied as to the existence of 'special circumstances', then it remains necessary for the Tribunal to weigh whether those circumstances are sufficient to amount to special circumstances that justify departing from the general rule that each party bears its own costs: BPU v NSW Trustee and Guardian (Costs) [2016] NSWCATAP 87 at [9].

The Chief Commissioner's costs application

1. The Chief Commissioner criticises a number of aspects of the Applicant's conduct of the proceeding. The criticisms can be summarised as follows:

• The Applicant, legally represented throughout the proceeding, failed to put on sufficient evidence to discharge its onus of proof; instead, evidence addressing some of the essential elements of the Applicant's case was produced by the Chief Commissioner;
• In particular, the proof of the critical issue of the precise boundaries of the land in question was left up to the Chief Commissioner through the commissioning of town planning reports; and
• The Applicant's failure to accept the Chief Commissioner's offer of settlement caused the Chief Commissioner to incur additional costs, including the preparation for and attendance at the four-day hearing not only by his legal representatives but also by his expert witnesses.

1. The Chief Commissioner relies on three affidavits affirmed by Kathleen Kerr, the solicitor with carriage of this litigation on behalf of the Crown Solicitor. The Applicant relies on an affidavit sworn by Richard Snowden of King & Wood Mallesons (KWM), the Applicant's solicitors. Neither Ms Kerr nor Mr Snowden was cross-examined and there appears nothing controversial or disputed about any of the evidence they have given.
2. Ms Kerr also had carriage of earlier proceedings, commenced in the former Administrative Decisions Tribunal in 2013 by the Applicant, and also involving a primary production exemption claim in respect of land at Erskine Park that included the subject land in this proceeding. The application in the earlier proceedings, dealing with the land tax years 2010, 2011 and 2012, was withdrawn on the final working day before the commencement of a planned two-week hearing, in December 2014. The Chief Commissioner made a costs application in relation to those proceedings but was unsuccessful: Fitzpatrick Investments Pty Limited v Chief Commissioner of State Revenue [2015] NSWCATAD 103, upheld on appeal in Chief Commissioner of State Revenue v Fitzpatrick Investments Pty Limited [2016] NSWCATAP 91.
3. Ms Kerr's evidence traces the history of the current proceeding, which, although protracted, does not strike me as out of the ordinary. The matter was initially stood over for about three months since it was perceived that another matter, which was then reserved before the Tribunal, may shed some light on some of the issues arising in this case. It became necessary to stand the matter over for an additional six weeks to accommodate the Tribunal's delivery of its decision in that other matter on 21 June 2019: McIntosh Bros Pty Ltd (In Liq) v Chief Commissioner of State Revenue [2019] NSWCATAD 124.

Insufficient evidence to discharge the Applicant's onus of proof?

1. The 2021 Decision identifies the three separate facts the Applicant needed to establish for its case to be made out in respect of each of the land tax years in issue. They are that:

• the dominant use of the land was for primary production;
• that use of the land had a significant and substantial commercial purpose or character; and
• that use of the land was engaged in for the purpose of profit on a continuous or repetitive basis.

1. Only the first of those facts was found in the Applicant's favour, and then only for the 2014 land tax year. The second fact was not established for the 2014 year, and whether it was the case for the 2015 or 2017 land tax years did not need to be considered. Whether the third fact existed did not need to be considered for any of the years in issue. Furthermore, in light of the Applicant's decision not to press its exemption claim in respect of the 2016 land tax year, none of the three factual issues came up for consideration by the Tribunal for that year.
2. The Chief Commissioner always doubted whether the Applicant's evidence was sufficient to make good its case. The problem was not so much what it said as what it didn't say. Even by the time of the hearing the evidence fell short on the 'dominant use' question for two of the three years that remained in play, and also on the 'significant and substantial commercial purpose or character' question for the only year that it was considered.
3. But the Applicant emphasises that under s 100(3) of the Taxation Administration Act 1996 (the Administration Act) it bore the onus of proving its case. It put on evidence concerning each of the three matters listed in [13] above; if the evidence was lacking in any respect then the Chief Commissioner could simply rely on the Applicant's failure to satisfy its onus of proof, and the assessments would necessarily be confirmed.

The boundaries of the land

1. A week before delivery of the Tribunal's decision in McIntosh Bros, Ms Kerr asked the Applicant, through its solicitors KWM, to provide diagrams showing the boundaries of the land as it was at 31 December of each year from 2012 up to and including 2017. That request seems to have been motivated by a perception held by those in the Chief Commissioner's camp that the Applicant had not provided precise information about the boundaries of the land during the years covered by the earlier proceedings.
2. The reply, dated 21 June 2019, to that request comprised a number of plans of the Erskine Park land together with accompanying documents and photographs, and statements provided by the Applicant (Exhibit 3, KK-2, page 24 - the 21 June Information) indicating: 1. the 'Boundaries of Pastoral Land' were unchanged from 31 December 2012 to 31 December 2015; 2. physical work commenced on the Tyremax site on 16 December 2015; 3. 'Pastoral Land Boundaries' on 31 December 2016 are as set out in 'Rev[ision] B' of the plan at page 19, reflecting the excision of the Tyremax site at some time during the 2016 calendar year; 4. the 'Boundaries of Pastoral Land' on 31 December 2017 were the same as on 31 December 2016.
3. In short, the 21 June Information alerted the Chief Commissioner to the fact that the Tyremax site formed part of the assessed land at 31 December 2015 (a fact relevant to the 2016 land tax year) and that some physical work on that site took place in the two weeks leading up to that date.
4. However, some factual confusion was introduced by Jamie Stewart's affidavit dated 5 September 2019, and filed on behalf of the Applicant. Mr Stewart deposed that the Tyremax site (and also, incidentally, the Pelikan Artline site) did not form part of the assessed land. That is inconsistent with the 21 June Information, at least as far as the 2016 land tax year is concerned. But Mr Stewart also deposed that the area of land on which Tyremax was situated was excised from the land on 8 December 2016 (which is consistent with, and somewhat more precise than, the 21 June Information).
5. The inconsistency within Mr Stewart's affidavit - on the one hand, the Tyremax site did not form part of the assessed land; and on the other hand, it was part of the assessed land until it was excised on 8 December 2016 - was identified by the Chief Commissioner as an 'anomaly'. The Chief Commissioner formed the view that 'the Tribunal would be assisted by town planning evidence to demonstrate what the Subject Land was comprised of in the relevant years': Exhibit 2 [33]. Curiously, as far as I can tell, the Chief Commissioner did not at the time confront the Applicant with this 'anomaly', despite the fact that the 21 June Information had set out the position plainly enough and, if highlighted to the Applicant in a timely fashion, could have laid the matter to rest fairly quickly.
6. But the Chief Commissioner also thought the evidence was lacking in detail about the amount and the intensity of the industrial development taking place, and whether it was on the land itself or on land adjoining it (which, arguably, still remained somewhat uncertain or confused).
7. In any event, the issue of the Chief Commissioner's requirement for town planning evidence was raised at a directions hearing on 17 October 2019 at which, according to Ms Kerr (Exhibit 3 [41]), counsel for the Applicant indicated such evidence was unnecessary as it had been dealt with in sufficient detail in the Applicant's lay evidence.
8. The Chief Commissioner proceeded to obtain expert town planning evidence: James Lidis of Design Collaborative provided two reports, the first in November 2019 and the second in March 2020. The first report confirmed that the Tyremax site was still part of the assessed land at 31 December 2015. Mr Stewart swore a second affidavit effectively conceding the point.
9. The Chief Commissioner submits at [20] of his written submissions that '[t]he anomaly and deficiencies of the Applicant's evidence, and by its conduct, necessitated the Respondent to produce the Two Town Planning reports and to request the Applicant produce evidence'.
10. The Applicant's response to the Chief Commissioner's submission is, once again, that the Applicant at all times bore the onus of proving its case under s 100(3) of the Administration Act. It follows, so the submission goes, that the Chief Commissioner does not himself have to prove any particular fact. The Applicant filed evidence addressing the boundaries of the land and the activities conducted on it, it was not necessary to retain an expert witness to give town planning evidence, and it would have involved incurring further expense if it had.

Rejection of the settlement offer

1. In the Calderbank letter dated 13 March 2020 (two and a half weeks before the scheduled, but subsequently postponed, commencement of the hearing) the Chief Commissioner offered to settle the proceeding on the basis that the Tribunal would confirm the assessments for each year, with each party to pay its own costs. The Applicant had a week to respond to the offer but did not do so within that timeframe or at all.
2. The Chief Commissioner identified in the offer letter the major shortcoming in the Applicant's case - that it had not included in its evidence any details concerning the competing physical activities conducted on the land, such as the nature of the activities undertaken, the costs associated with them, the precise location of any physical development activities and in particular any details about the location and costs related to the drainage activities. The Chief Commissioner cited the following comments of White J in Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9 at [99]: It should not have been necessary for the Chief Commissioner to have served those subpoenas and to have adduced details of the evidence on the question of the extent and cost of civil works conducted on or relating to the Farmland in question. In land tax cases such as this, all of the relevant evidence is known to the taxpayer, or is accessible to the taxpayer through its consultants or contractors. The onus is on the taxpayer to establish its case. The taxpayer is expected to put forward its position frankly, warts and all.
3. It was put to the Applicant that its failure to present its case 'warts and all' had forced the Chief Commissioner to put town planning and other evidence before the Tribunal, to assist the Tribunal to make the correct and preferable decision in relation to the assessments.

Consideration

1. One of the Chief Commissioner's fundamental propositions is that the Applicant did not produce sufficient evidence to prove its case, despite repeated warnings that its evidence did not address critical components of the primary production exemption provisions.
2. The proposition has several limbs to it. One is that there was uncertainty around the precise boundaries of the land. Another is that the competing uses of the land, and the nature and intensity of those uses, were not identified with precision. Yet another is that the timing and details of land subdivisions were not explained sufficiently or at all. These and other deficiencies, so the argument goes, effectively forced the Chief Commissioner to produce material to explain and fill the gaps.
3. The Chief Commissioner claims to have been 'unnecessarily disadvantaged' by the Applicant's conduct. To the extent that the claim is based on the deficient state of the Applicant's evidence, I do not agree. In fact, it is hard to see how, in a case such as this, the Chief Commissioner could rightly be seen to have been disadvantaged - let alone unnecessarily disadvantaged - by the fact that the Applicant's evidence was deficient.
4. Under s 100(3) of the Administration Act, the Applicant had the onus of proving its case. If there was any deficiency in the Applicant's evidence the Chief Commissioner was under no obligation to fill in the gaps. He did not have to prove there were competing uses of the land; the Applicant had to prove either that there were none, or that any competing uses were subsidiary to the primary production use. Indeed, that is precisely what the Applicant was able to prove in respect of the 2014 land tax year - albeit not in respect of the 2015 or 2017 years.
5. On the more difficult questions concerning commercial purpose or character, and the purpose of profit, the Applicant's case depended on a finding in its favour that the Southern Highlands land could be taken into account. That finding was not made, but that is not to say that its case was entirely without merit on that point. I do not see the Chief Commissioner suffering any unnecessary disadvantage as a result of the Applicant's continuing to press for a favourable outcome on that part of its case.
6. That discussion is also relevant to the questions whether the Applicant's claim had no tenable basis in fact or law, and whether the Applicant made claims that were lacking in substance. It is surely plain to see, from the extensive and careful consideration given in the 2021 Decision to the Applicant's exemption claims, that neither 'no tenable basis' nor 'lacking in substance' is an appropriate way to characterise the Applicant's case. It naturally follows from the Tribunal's decision that the Applicant's case was not strong enough to displace the assessments, but what doesn't follow is that the Applicant's case was entirely empty. While every adjudicated outcome in the Tribunal has a winner and a loser, not every loser has a hopeless case.
7. Those arguments hold for the 2014, 2015 and 2017 land tax years, but not for 2016. This was a land tax year in which significant industrial development took place on land that Mr Stewart had ultimately identified as included in the land the subject of the assessment. It is hard to see why the thinking that prompted the withdrawal of the claim for that year two business days before the commencement of the hearing, was not applied much earlier, and, in any event, no later than around the time of the Chief Commissioner's offer of settlement.
8. The Applicant's withdrawal of its claim for 2016 was an appropriate - indeed, the only appropriate - action for it to take. But it should have taken that action much earlier than it did. It could not, on any objective analysis, have made good its claim that the dominant use of the land in respect of that land tax year was the primary production use. And yet the Chief Commissioner still had to prepare his case for that year just as carefully and comprehensively as for the other three years.
9. It is important to note this was not a case where the facts found for one year would determine the findings for the remaining years. Different activities were undertaken in each year. That meant the Chief Commissioner's counsel and witnesses needed to devote time to the assessment of the position for 2016 to the same extent as was required for each of the remaining years, and right up until two business days before the hearing was to commence, even though that effort turned out to be a waste of time.
10. In the overall context of this proceeding, the Applicant's decision not to press its claim for 2016 should be seen as an acknowledgment that its claim for that year was bound to fail. I do not suggest that is invariably the case, but it is plainly the case here. In the language of NCAT Act s 60(3), the Applicant's conduct of the proceeding, to that extent, unnecessarily disadvantaged the Chief Commissioner. Furthermore, it is right to characterise the Applicant's case, to that extent, as having no tenable basis in fact.
11. I find that this case contains 'special circumstances' - in that the Applicant continued, until the very last moment, in pressing a claim that had no tenable basis in fact. As a consequence the Chief Commissioner was forced, until the very last moment, to address and devote energy to that part of the Applicant's case, and was thereby unnecessarily disadvantaged.
12. Do those special circumstances warrant an award of costs? Yes they do.
13. Nevertheless, I do not accept that orders (a) or (c) sought by the Chief Commissioner should be made. For reasons already explained, I do not accept that it was necessary for the Chief Commissioner to obtain expert town planning evidence. Nor do I think the Applicant should bear the cost incurred by the Chief Commissioner in obtaining a transcript of the four-day hearing.
14. I consider the appropriate order to make is one consistent with the Chief Commissioner's alternative order (b) - in other words, 50% of the Chief Commissioner's professional costs and the whole of his disbursements on an ordinary basis from the date of the Calderbank letter of 13 March 2020. That is in my view a reasonable basis on which the Applicant should compensate the Chief Commissioner, in light of the unjustifiably late withdrawal of the claim for the 2016 land tax year.
15. I also consider it reasonable, given the Chief Commissioner's success in this costs application (albeit to a lesser extent than sought), to order the Applicant to pay 25% of the Chief Commissioner's professional costs and the whole of his disbursements in respect of this costs application.

Orders 1. The Applicant is to pay to the Respondent 50% of the Respondent's professional costs and the whole of his disbursements on an ordinary basis from the date of the Calderbank letter of 13 March 2020. 2. The Applicant is to pay to the Respondent 25% of the Respondent's professional costs and the whole of his disbursements in respect of this costs application.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 May 2022