Hyder v Commissioner of Taxation

1. The respondent pay the costs of the applicants of and incidental to the proceedings.
2. Pursuant to s 23 and s 37P of the Federal Court of Australia Act 1976 (Cth), rule 1.32 and rule 1.36 of the Federal Court Rules 2011, these orders and the reasons for judgment in support of these orders are made and published from Chambers. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GREENWOOD J: 1 These proceedings are concerned with the disposition of the costs of the principal proceeding reserved by the orders of 22 March 2022 pending written submissions and further reserved on 21 April 2022 upon the making of the declarations and other orders. These reasons ought to be read in conjunction with the reasons for judgment in Hyder v Commissioner of Taxation [2022] FCA 264 (the "principal judgment"). 2 The applicants filed written submissions on 29 March 2022 and the respondent filed written submissions on 6 April 2022. The question of costs is to be decided on the papers. 3 The point of departure between the parties is that the applicants contend that the discretion ought to be exercised so as to order the respondent to pay the costs of and incidental to the proceeding on an indemnity basis whereas the respondent concedes that the applicants are entitled to an order for their costs but only on the usual party and party basis. 4 In the submissions of the respondent, emphasis is given to the observations of the Full Court of the Federal Court in Hamod v New South Wales (2002) 188 ALR 659 in which Gray J at [20] made the following observations (with which Carr J agreed at [26] and Goldberg J agreed at [27]): Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the costs order is made to have subjected the innocent party to the expenditure of costs. [emphasis added] 5 I accept the contention of the respondent that the above statement of principle informs the exercise of the discretion. The following considerations should be noted. 6 First, the exercise of the discretion so as to order a party to pay the costs of another, in light of the findings and relief granted in final resolution of the proceedings, is restitutionary, in character, or put another way, compensatory, not punitive. 7 Second, on the question of whether it was unreasonable for the respondent to have subjected the applicants to the expenditure of costs so as to secure a remedy addressing the conduct in issue, it needs to be kept firmly in mind that the conduct of the Commissioner across the period of the declarations engaged an "oppressive" exercise of the power conferred on the repository of the power. Ultimately, on 27 July 2021, the Commissioner withdrew from the position he had historically adopted across the period of the declarations, no doubt in part because, in the period leading up to the hearing, senior counsel had advised the Commissioner to adopt a change in position and, as counsel for the Commissioner put it, the Commissioner had landed in the particular place before the Court. 8 Third, although, of course, the Commissioner is entitled to issue alternative assessments to taxpayers, the Commissioner's officers must necessarily be taken to be familiar with all of the elements and text of PSLA 2006/7; familiar with the notion that the Commissioner cannot recover under both alternative assessments; familiar with the proposition that the Part IVC proceedings provides the taxpayers with the opportunity to demonstrate, on the merits, whether one or other or both of the alternative assessments are valid; importantly, familiar with the notion of what would constitute "oppressive" conduct when seeking to recover (and/or secure first ranking security) before the resolution of the Part IVC proceedings, the full amount of both alternative assessments; and, of course, familiar with the observations of the Court (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ) in Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55 at 67 as quoted in the reasons for judgment at [201]. 9 Fourth, it would be difficult to identify any set of circumstances in which an oppressive exercise of power conferred on the repository of the power, exercised against a citizen, could be described as "reasonable". 10 Fifth, there can be no doubt that but for the proceedings, the change of position adopted by the Commissioner reflected in Mr Duhig's email of 27 July 2021 would not have occurred. 11 Sixth, in the principal proceeding, the applicants sought the grant of the constitutional writ of prohibition and an injunction in reliance upon s 39B(1) of the Judiciary Act 1903 (Cth) on the footing that they challenged the validity of the alternative assessments on a number of grounds including, put simply, that the Commissioner was seeking to recover twice or thrice on the same source of income. It became necessary for the Court to closely examine those contentions and determine whether or not those matters were susceptible of a remedy under s 39B(1) of the Judiciary Act having regard to the principles established by their Honours, Gummow, Hayne, Heydon and Crennan JJ, in Federal Commissioner of Taxation v Futuris Corporation Limited (2008) 237 CLR 146. As to those principles, see the discussion in the principal judgment at [184] to [194]. 12 For all the reasons indicated in the principal judgment, the various matters sought to be agitated by the applicants going to any question of the validity of the alternative assessments was a matter to be ventilated in the Part IVC proceeding. 13 That left outstanding two matters to be determined. 14 The first was whether the Commissioner had engaged in an oppressive exercise of public power conferred on the Commissioner as the repository of the power. That question was a separate question to whether the alternative assessments were valid or invalid. For all the reasons indicated in the principal judgment, the Court found that the repository of the power had engaged in jurisdictional error and had otherwise fallen into error in the way described in the principal judgment: see, for example, the summary conclusion at [221]-[224]. 15 The second question involved the matter of the challenge to the decision of Ms Llorca of 26 February 2021. 16 The applicants were successful in relation to that matter. 17 In relation to the question of whether officers of the Commissioner engaged in oppressive conduct, the Court accepted that the decision-makers had exceeded the limits of the power conferred on the repository. However, the Court did not find that the decision-makers had acted intentionally beyond power or had acted malevolently. Of course, it is not necessary for a party seeking an order for costs on an indemnity basis to demonstrate that the party acted with the intention of subjecting an innocent party to the expenditure of costs. 18 Although the Commissioner must be taken to be familiar with all of the matters described at [8] of these reasons, I am satisfied that the Commissioner took a position which was shown to be wrong. By itself, that conduct does not give rise to an exercise of the discretion to award indemnity costs. Although the position adopted by the Commissioner was unreasonable until 27 July 2021, I am satisfied that the Commissioner's officers simply acted out of error. The circumstance that the applicants were unsuccessful on the contentions which engaged the discussion about the Futuris principles, is no reason to limit the entitlement of the applicants to costs. 19 I am satisfied that a fair, just and reasonable exercise of the discretion involves ordering the Commissioner to pay the costs of the applicants of and incidental to the entire proceedings, but not on an indemnity basis. To the extent that there can be any doubt about the matter, the scope of the order includes those costs of and incidental to the originating application filed on 9 October 2020; the amended originating application filed on 14 May 2021; and the further amended originating application filed on 31 August 2021. The order comprehends the costs of and incidental to the proceedings generally, including the retention of senior and junior counsel throughout the proceeding. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Greenwood.