On 4 and 5 June 2015, I heard proceedings between Grain Growers Limited ("Grain Growers") and the Chief Commissioner of State Revenue ("Chief Commissioner"), addressing the question whether Grain Growers was entitled to an exemption from payroll tax, under s 48 of the Payroll Tax Act 2007 (NSW), on the basis that it had a charitable purpose and that wages paid or payable to its employees were for work ordinarily performed in connection with that purpose and to persons engaged exclusively in that kind of work.
I delivered judgment on 14 July 2015 ([2015] NSWSC 925 ("Judgment")) and held, in summary, that Grain Growers had established that its purpose in conducting its affairs, and the businesses of two associated entities, BRI and Agrecon Operations Pty Ltd ("Agrecon"), was of advancing the Australian agricultural industry and had a charitable character. I held that the requirements of s 48(1) of the Payroll Tax Act were satisfied in respect of Grain Grower's activities in the relevant years. I noted that no question as to s 48(2) of the Payroll Tax Act arose in the 2009 to 2011 tax years. However, I held that, in the 2012-2013 years, Grain Growers had not established that wages paid or payable to Grain Growers' employees working in successor functions to BRI and Agrecon were paid or payable for work of a kind "ordinarily performed" in connection with the relevant charitable purposes of Grain Growers, and that an exemption from payroll tax was therefore not available to Grain Growers' employees engaged in those activities, by reason of s 48(2) of the Payroll Tax Act.
On delivering the Judgment, I directed the parties to submit agreed short minutes of order or, if there was disagreement between them, their respective draft short minutes of order and short submissions as to the differences between them, and also made directions that would permit further submissions in reply. On 1 September 2015, I made orders by consent to give effect to my judgment, in respect of amounts to be refunded by the Chief Commissioner to Grain Growers in respect of the tax years ending 30 June 2009, 30 June 2010 and 30 June 2011, and lesser amounts to be refunded to Grain Growers in respect of the years ending 30 June 2012 and 30 June 2013. I also made orders, by agreement of the parties, extending the times for the parties to lodge submissions as to costs and to indicate whether an oral hearing as to costs was required. Both parties subsequently lodged submissions as to costs and reply submissions, and the parties indicated they did not require an oral hearing as to costs and were content to have the question determined by reference to those written submissions.
[3]
The parties' positions
By its submissions filed on 2 September 2015, Grain Growers sought an order for costs against the Chief Commissioner on an ordinary basis, contending that the costs of the proceedings should follow the event. The Chief Commissioner contended that the proper form of orders was that each party should pay their own costs.
Both parties referred in submissions to s 98 of the Civil Procedure Act 2005 (NSW) which sets out the Court's power to order costs and to r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) which provides that:
"Subject to this Part, if the Court makes any order as to costs, the Court is to order that the costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs."
It should be recognised, of course, that an order for costs is made to compensate a successful party for the expense of being put to the necessity of litigation; a wholly successful party should ordinarily receive its costs unless good reason is shown to the contrary; and the discretion to order costs must be exercised judicially and not against the successful party except for some reason connected with the proceedings: Milne v Attorney-General (Tasmania) [1956] HCA 48; (1956) 95 CLR 460 at 477; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 97-98 per McHugh J, at 119-123 per Kirby J; Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 at 234.
Grain Growers submitted that it was successful in seeking an exemption from payroll tax under s 48 of the Payroll Tax Act and was required to commence proceedings and run the matter to trial in order to overturn the Chief Commissioner's previous decision denying it such an exemption. Grain Growers pointed out that, as a result of the Judgment, it was entitled to a significant refund of payroll tax already paid in each of the relevant years, and that it had obtained substantial relief in respect of the Chief Commissioner's earlier decision as to its claim to a refund of payroll tax. Grain Growers submitted that it had obtained refunds of all of the payroll tax paid in the 2009-2011 years, and somewhat smaller percentages of the payroll tax paid in the 2012 and 2013 years.
Grain Growers also relied on an offer of compromise made by it on 2 April 2015, which was not accepted by the Chief Commissioner. Grain Growers acknowledged that its offer of compromise was less favourable to the Chief Commissioner than the judgment achieved by the Chief Commissioner, but submitted that it showed a real attempt by Grain Growers to reach a compromise, and that there had been no attempt by the Chief Commissioner to negotiate or compromise with Grain Growers in respect of the proceedings. So far as Grain Growers relies on its offer of compromise, the Chief Commissioner responds that no adverse costs order can flow, where it did better at the hearing than the terms of that offer, and submits that there is no factual basis upon which to make findings as to the parties attempts to settle the issue in dispute, at least beyond that offer.
It seems to me that the offer of compromise does not advance Grain Grower's position where it offered to settle on a basis less favourable to the Chief Commissioner than the result he has achieved.
[4]
The extent of the parties' success
Grain Growers submitted that none of the arguments put by the Chief Commissioner at the hearing were accepted. Grain Growers pointed out, correctly, that the Chief Commissioner had submitted that Grain Growers was not a charitable organisation and that submission was not accepted (Judgment [75]). Grain Growers also pointed out that the Chief Commissioner had submitted that wages must be paid for work that is "intrinsically" charitable in order for Grain Growers to be entitled to an exemption from payroll tax under s 48 of the Payroll Tax Act. In paragraphs 87-90 of the Judgment, I also did not accept that submission, or the Chief Commissioner's further submission that the "ordinarily performed" test in s 48(2) of the Payroll Tax Act necessarily excluded work that had a commercial character.
In paragraph 15 of its submissions as to costs, Grain Growers submitted that the Court adopted (Judgment [90]) in preference to the Commissioner's submissions:
"… a 'comparable activity test' … This characterisation was a matter on which neither party had the opportunity to make submissions or lead evidence and is contrary to the Chief Commissioner's long-standing published position on that issue."
In that paragraph of the Judgment, I had observed that:
"It follows that it could, in principle, have been established by evidence that work of the kind performed by BRI and Agrecon, despite its commercial character, is ordinarily performed by bodies with a charitable purpose of advancing agriculture and the requirements of s 48(2) of the Payroll Tax Act would then be satisfied. That was not established in this case, as a matter of evidence in respect of the activities of BRI and Agrecon, rather than because it could not be established as a matter of principle. It does not seem to me that, as a matter of inference and without a specific evidentiary basis, I could properly find that grains research or the provision of consulting services utilising satellite imaging are work of a kind "ordinarily performed" in connection with a charitable purpose of the advancement of agriculture. As I noted above, the fact that Grain Growers itself conducts those activities does not establish that they are ordinarily performed for the purpose of the advancement of agriculture, since its interest in those fields may be idiosyncratic or a product of its particular circumstances. Grain Growers did not lead evidence of any substance that research into bread or grain or the provision of consulting services using satellite imaging are ordinarily performed by charitable bodies that have the purpose of promoting agriculture, by contrast with, for example, educational activities that may well be ordinarily performed by such bodies. Although there are scattered references in the evidence to activities undertaken by United States governmental and trade bodies, those references fall well short of establishing any "ordinary" practice among bodies directed to the advancement of agriculture of undertaking the kind of activities undertaken by BRI or Agrecon. The business rationale for Grain Growers' acquisition of those businesses, so far as it emerges from the affidavit evidence and the documents to which I have referred above, did not suggest that they were acquired because their services were "ordinarily performed" by comparable bodies to Grain Growers, or other bodies directed to the advancement of agriculture, as distinct from being desirably performed by Grain Growers in its particular circumstances."
Prior to making that comment, I had observed, in paragraphs 87-89 of the Judgment (to which Grain Growers referred in its submissions in reply as to costs) that it seemed to me that the test established by s 48(2) of the Payroll Tax Act required an assessment whether the relevant work was of a kind "ordinarily performed" in connection with the relevant charitable purpose of the particular body, in this case the advancement of agriculture or at least of grain growing; that that would require an assessment of whether the particular activities of the relevant body were such that bodies with the same charitable purpose ordinarily, or in other words regularly, commonly or customarily, perform them; and that that:
"… will be readily satisfied in some circumstances. For example, it might be readily established that bodies with a charitable purpose of the advancement of agriculture ordinarily conduct agricultural shows or educational activities to improve the knowledge of participants in that industry or to attract participants to that industry, as Grain Growers does, or that bodies with a charitable purpose of the relief of poverty ordinarily conduct soup kitchens to feed the poor or distribute food to poor families or toys to poor families at Christmas, such that it is apparent that those activities are "ordinarily performed" for that purpose. That statutory test will have regard to the circumstances of the particular body, since whether the relevant connection exists is to be determined having regard to that body's purpose. However, it does not seem to me that it can be established that an activity is "ordinarily performed" in connection with a charitable purpose of the advancement of agriculture merely by the fact that the particular body performs it, even if it does so on a regular basis."
In expressing those views, I did not accept the approach, advanced in Grain Growers' submissions and largely assumed in its evidence, that whether work was of a kind "ordinarily performed" in connection with a relevant charitable purpose was established by showing that employees of Grain Growers ordinarily performed that work.
The test to be applied under s 48(2) of the Payroll Tax Act is, of course, that set by the statute, namely whether the relevant wages were paid "for work of a kind ordinarily performed in connection with the … charitable … purposes of the institution or body". The application of that statutory test in the particular case raises questions both of construction of the section and of evidence that I addressed in the Judgment. I do not understand paragraph 90 of the Judgment to adopt a "comparable activity test" or any other "test" of general application, although paragraphs 87-89 identified matters that would be relevant to the application of the statutory test, and also noted the statutory test might more readily be satisfied in some circumstances than in others. Paragraph 90 in turn noted several kinds of evidence that could establish whether work was "ordinarily performed" for the relevant charitable purpose, namely the promotion of Australian agriculture, for the purposes of s 48 of the Payroll Tax Act, and noted that such evidence had not been led. The paragraph then records a finding that the evidence led by Grain Growers was not sufficient to establish that the work undertaken in respect of BRI's and Agrecon's particular activities was of a kind "ordinarily performed" in connection with the relevant charitable purpose.
Grain Growers also submits that the parties did not have the opportunity to make submissions or lead evidence as to the "test" said to arise from paragraph 90 of the Judgment, or the construction of s 48(2) of the Payroll Tax Act adopted in the Judgment, although it is not entirely clear why that is relevant to the question of costs as between the parties. Following receipt of Grain Growers' submissions as to costs, which advanced that position, I requested my Associate to draw the parties' attention to an exchange as to the scope of s 48(2) of the Payroll Tax Act (T51-52) in oral submissions, and invited confirmation whether that submission was pressed and further submissions from both parties in respect of it. In submissions in reply, Grain Growers indicated that it pressed this submission and elaborated upon it. The Chief Commissioner, in reply, contested the correctness of that submission, pointing to the exchange in oral submissions to which I had drawn the parties' attention. The Chief Commissioner fairly accepted that it had not advanced the particular approach to s 48(2) of the Payroll Tax Act adopted in paragraphs 87-90 of the Judgment, having instead contended for the narrower reading of that subsection to which I referred above. The Chief Commissioner relied on Bondi Beachside Pty Ltd v Chief Commissioner of State Revenue (No 2) [2014] NSWCA 128, which deals with the position as to costs where an issue is first raised on appeal. Grain Growers submits, and I accept, that that decision deals with that different issue and is of little assistance in respect of the costs of these proceedings.
I should address Grain Growers' submission that the parties did not have the opportunity to address that issue, since it is pressed in the costs application, although, as I noted above, it is not clear to me how it would have an impact on the question of costs as between the parties. The case advanced by Grain Growers as to s 48(2) of the Payroll Tax Act, as its emerged from its submissions and the structure of its evidence, was to seek to establish that its work was of a kind "ordinarily performed" in connection with the relevant charitable purpose by describing it (for example, as consulting services using satellite imaging), showing that Grain Growers' employees ordinarily performed it and pointing to a connection between that work and Grain Growers' charitable purpose or objectives. Grain Growers' opening outline of submissions put that position as follows:
"All wages paid or payable by Grain Growers are paid or payable for work of a kind ordinarily performed in connection with Grain Growers' charitable purpose to persons who engaged exclusively in that kind of work. There are no wages paid to persons who are engaged in activities (commercial or otherwise) which are unrelated to furtherance of the charitable objects of Grain Growers …
… [N]o employee of Grain Growers is employed for any other purpose other than to carry out activities in furtherance of the objectives of Grain Growers. As such the wages are paid or payable for work of a kind ordinarily performed in connection with the charitable purpose of Grain Growers and as paid or payable to persons engaged exclusively in that kind of work."
I understand the reference to "work" in that submission, in respect of the functions undertaken in respect of Agrecon and BRI, is respectively to research and the provision of consulting services using satellite imaging and bread research. The reference to the "charitable objects of Grain Growers" is to the advancement of Australian agriculture, the charitable purpose on which Grain Growers relied. The last paragraph advances the proposition that employees in Grain Growers' business were employed for its business purposes, and draws the conclusion that the work they did must therefore be of a kind "ordinarily performed" for the advancement of Australian agriculture, being the relevant charitable purpose. That approach, and Grain Growers' evidence, had a somewhat self-referential character, so far as what employees of Grain Growers ordinarily did was treated as proving what was "ordinarily done" for the purpose of the advancement of Australian agriculture, being the relevant charitable purpose.
In the course of closing submissions, in the passage to which my Associate draw the parties' attention and on which the Chief Commissioner relies, I invited Senior Counsel for Grain Growers (T51) to have regard to the language of s 48(2) of the Payroll Tax Act and its application in the particular circumstances. I raised the possibility that the test in that subsection could involve a question whether wages were paid or payable for work of a kind "ordinarily performed" in connection with the advancement of Australian agriculture, being the charitable purpose on which Grain Growers relied, and that that test may involve a question whether the work was objectively for the relevant purpose, as applied in the particular circumstances of Grain Growers. I also raised further possible approaches to that test, which were potentially favourable (as I there noted) to Grain Growers (T51-52). It seems to me that I there highlighted both the issue to be addressed and the possibility that it might be addressed by an objective approach and by reference to the relevant charitable purpose - that is, an approach not directed only to what Grain Growers did - and Grain Growers there had the opportunity to address that issue, the logic of its approach to s 48(2) of the Payroll Tax Act and the risk that that approach might not be persuasive or the evidence on which it relied might not be sufficient to establish the position for which it contended.
Grain Growers also submits that the "test" said to arise from paragraph 90 of the Judgment is inconsistent with the Chief Commissioner's position expressed in its "Fact Sheets" for June 2012 and June 2015, which were not in evidence in the primary hearing and were addressed in Grain Growers' submissions in this costs application. Both "Facts Sheets" observe that:
"Subsection 48(2) [of the Payroll Tax Act] requires that the wages must be paid or payable to a person engaged exclusively for work of a kind ordinarily performed in connection with the religious, charitable, benevolent, philanthropic or patriotic purpose of the organisation. Persons engaged directly in the primary work or in administrative or management work which is predominantly associated with the organisation's charitable or similar work are accepted as being exclusively engaged in that work.
Wages paid to persons working in a nonprofit organisation that has wholly charitable purposes will be exempt even if those persons are engaged in commercial work of the organisation.
However, if a non-profit organisation has a charitable purpose but is not wholly charitable, only the wages paid to the persons engaged exclusively in the organisation's charitable purpose, including commercial activities connected with the charitable purpose, are exempt from payroll tax.
Wages paid to persons who are partly or exclusively engaged in commercial activities which are not connected with the charitable purposes of the organisation are not exempt."
Grain Growers' submission as to the ""Fact Sheets" assumes that paragraph 90 of the Judgment establishes a "test" of general application, a proposition that I have not accepted above. I also find it difficult to see the relevance, to the question of costs, of an inconsistency between a finding in proceedings, on the evidence led in them, and a position adopted out of Court by a party in a document that (as Grain Growers acknowledges) was not in evidence at the hearing. If the Court's views are inconsistent with the "Fact Sheets", that would be neither particularly surprising nor, it seems to me, a matter relevant to costs where neither party relied on them at the hearing to support a particular construction of s 48(2) of the Payroll Tax Act.
Grain Growers also advances a wider submission that the position which the Chief Commissioner took at the hearing, in relation to the scope of s 48(2) of the Payroll Tax Act, was contrary to the Chief Commissioner's published position as to the construction of that section in the "Fact Sheets". The Chief Commissioner in turn seeks to justify the suggested departure from the view expressed in the "Fact Sheets" on the basis that there were no cases on point as to the statutory construction of s 48(2) of the Payroll Tax Act. I do not consider I should place significant weight on the "Fact Sheets" in determining that matter, or this application, where, as I have noted, they were not in evidence and were not relied on at the primary hearing in respect of the issue as to the construction of s 48 of the Payroll Tax Act. It is ultimately not necessary to do so given the result that I reach on other grounds.
I add, for completeness, that Grain Growers did not press a further submission adverse to the Commissioner's approach at the hearing, in connection with an agreement between the parties not to require an oral hearing as to costs, and I do not have regard to or address that further submission.
[5]
Implications of a "mixed result"
Grain Growers submitted that the judgment gave rise to a "mixed result" in that Grain Growers would not receive the entire amount it claimed in its Originating Process. It may be that that characterisation is appropriate, at least to the extent that Grain Growers did not succeed on all issues that it put or recovered all that it had sought, although Grain Growers had plainly established an entitlement to a substantial monetary recovery. Grain Growers in turn contends that it had achieved substantial success on any basis, whether impressionistic, mathematical or otherwise, and was entitled to its costs on the ordinary basis and without differentiating between issues.
The Chief Commissioner seeks to identify "sub-issues" in the proceedings, as to whether Grain Growers had a dominant charitable purpose of the promotion of agriculture in the years in issue, and whether wages were exempt in each of the years in question under s 48(2) of the Payroll Tax Act. It noted that the latter issue did not arise in respect of the 2009-2011 years. In submissions in reply, Grain Growers responded that it was successful as to the first sub-issue identified by the Chief Commissioner and was largely successful with respect to the second. The Chief Commissioner also relies on the proposition that it retained a larger amount, as payroll tax, than the amount which Grain Growers had obtained as a refund, and that the Chief Commissioner had succeeded, at least in money terms, by a greater percentage than Grain Growers. I do not consider that such a measure provides any real assistance in determining the question of the parties' respective success in the proceedings, or whether the issues on which Grain Growers did not succeed were sufficiently substantial or separable to warrant a separate costs order in respect of them or the order that each party pay its own costs for which the Chief Commissioner contends. In submissions in reply, Grain Growers also responded that the ultimate issue in the proceedings was not the amount of payroll tax payable in respect of the particular years, but whether Grain Growers was entitled to an exemption from payroll tax, and that it had established such an exemption, although on a more limited basis than it had sought.
Grain Growers drew attention to the observations of the Court of Appeal in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] in that regard. The Court of Appeal there noted that:
"Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed. …
In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument. …." (Citations of authorities omitted)
That principle has been recognised and applied in earlier and several later cases, to which the parties did not refer. In Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136, Toohey J noted, with reference to authority, that where a litigant had succeeded only upon a portion of its claim, the circumstances may make it reasonable that it bear the expense of litigating that portion upon which it failed, and that a successful party who had failed on certain issues may not only be deprived of the costs of those issues but may also be ordered to pay the other parties' costs of them. In Short v Crawley (No 40) [2008] NSWSC 1302 at [33], White J noted, with reference to authority, that the entitlement to costs, even of a plaintiff which enjoyed substantial success was potentially:
"modified having regard to the various issues on which the Plaintiffs were wholly or partially unsuccessful, the extent to which those issues were dominant or severable, their overall significance to the outcome, the time they occupied during the hearing, and so far as can be discerned, in preparation."
In Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 at [28]-[31], in a passage approved by McDougall J in The Owners - Strata Plan 61162 v Lipman [2014] NSWSC 622 at [241], Hammerschlag J referred to the general rule and to cases where its application may be displaced. In particular, the Court may deprive a successful party of the costs relating to an issue on which it lost when that issue is clearly dominant or separable: Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [64]; Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [17]; Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 1509 at [11].
As I noted above, Grain Growers submitted that it was substantially successful in the proceedings. It seems to me that that is plainly the case, where Grain Growers sustained the proposition that it had a charitable purpose, in respect of the advancement of agriculture, over the Chief Commissioner's contention to the contrary; Grain Growers will receive substantial refunds of payroll tax in each of the 2009 - 2011 years, by reason of its success in that contention; and Grain Growers will also recover substantial refunds of payroll tax, although not all that it sought, in the 2012 - 2013 years, although it did not succeed on all issues or recover the entire amount that it sought. Applying the principles in Bostik Australia Pty Ltd v Liddiard (No 2) above, it seems to me that Grain Growers is properly characterised as the "successful party" in the proceedings. It does not seem to me that the issues as to s 48(2) of the Payroll Tax Act as to which Grain Growers was not successful took up a significant part of the trial, or that those issues could properly be characterised as clearly dominant or separable, so as to warrant a departure from the usual principle that costs follow the event. I also do not accept the Chief Commissioner's approach of seeking to determine the question of costs by the percentage of payroll tax which Grain Growers has recovered. It seems to me that the proper order for costs is that the Chief Commissioner of State Revenue pay Grain Growers' costs of the proceedings, as agreed or as assessed, and I so order.
[6]
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Decision last updated: 02 October 2015