IFTC Broking Services Limited v Commissioner of Taxation

Federal Court of Australia (Full Court)|2010-03-10|Before: Jagot JJ

THE APPEAL 1 This is an appeal against an order for costs. The appellants, IFTC Broking Services Ltd and International Finance Trust Company Ltd, were the third and fifth respondents to a notice of motion filed on 11 May 2009 by the respondent, the Commissioner of Taxation, claiming interlocutory orders restraining them from dealing with amounts of money in certain bank accounts in New Zealand. The interlocutory orders were intended to ensure that these assets were not diminished pending determination of the Commissioner's primary application for relief in connection with alleged tax liabilities of the first, second, third and fourth respondents. 2 On 9 July 2009 the primary judge dismissed the Commissioner's motion (Commissioner of Taxation v Grimaldi (No 3) [2009] FCA 740). On that day the primary judge also ordered the appellants to pay one quarter of the Commissioner's costs of the motion. The primary judge stayed the making of the costs order to allow submissions to be made. On 13 July 2009, following the making of submissions, the primary judge confirmed the costs order (Commissioner of Taxation v Grimaldi (No 8) [2009] FCA 769). 3 The appellants contend in this appeal that the primary judge's exercise of discretion on costs miscarried. According to the appellants the primary judge erred by failing to provide any or adequate reasons for depriving them, as the successful parties, of a costs order in their favour. They contend also that his Honour erred by failing to order that the Commissioner pay their costs in circumstances where: - (i) the application for interlocutory relief was dismissed, (ii) no finding of misconduct was made against the appellants, and (iii) the Commissioner did not, in the appellants' view, conduct the application in a "consistent, diligent and expeditious manner". The appellants seek orders that the appeal be allowed, the primary judge's decision on costs be set aside, and an order in substitution that the Commissioner pay their costs including costs on an indemnity basis on and from 20 May 2009. The significance of that date is explained below.

Preliminary matters 4 The primary judge was subject to a duty to give adequate reasons for his decision. The adequacy of reasons, however, must be assessed in the context of the nature of the decision. Accordingly, and as stated by Mahoney JA in Housing Commission of New South Wales v Tatmar Pastoral Co Pty Limited [1983] 3 NSWLR 378 at 386, while the basis of a decision "should be made apparent": This does not mean that the reasons given need be elaborate: an elaborate argument may not require an elaborate answer. Reasons need be given only so far as is necessary to indicate to the parties why the decision was made and to allow them to exercise such rights as may be available to them in respect of it. 5 Costs are in the discretion of the Court (s 43 of the Federal Court of Australia Act 1976 (Cth)). It follows that the orders of the primary judge cannot be disturbed other than on the basis of established principles for the setting aside of a discretionary decision. These principles are well-known (see House v The King (1936) 55 CLR 499 at 504-505) but bear restatement. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred. 6 The question whether any such error is apparent must be answered in light of the established principles with respect to the making of a costs order. Other than in one respect, those principles were not in dispute. The discretion to order costs is wide but must be exercised judicially. In the ordinary course, the successful party is entitled to be compensated by an order for costs against the unsuccessful party (Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11; Latoudis v Casey (1990) 170 CLR 534 and Ruddock v Vadarlis (No 2) (2001) 115 FCR 229; [2001] FCA 1865 at [33] - [36]). This principle of compensation underpins the approach often referred to as the "usual" order for costs on the basis that "costs follow the event". 7 According to the appellants the principle of compensation should be understood as meaning that the discretion to order costs cannot be exercised against a successful party except for some reason connected with the case and where that party is guilty of some misconduct. The Commissioner took issue with this formula. According to the Commissioner the usual costs order may be displaced in the particular circumstances of the case even where a successful party has not been guilty of misconduct. The Commissioner submitted that the appellants' submission was not supported by authority and, indeed, was contrary to the most recent statement of the Full Court in Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd [2010] FCAFC 5 at [17] (per Gray J, with whom Lindgren J agreed) that: The overriding principle that costs are in the discretion of the Court can also be expressed in terms of the negative proposition that no rule or principle should be applied mechanically in the determination of the question where costs should lie in any particular case. Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding. 8 We agree with the Commissioner's submissions in this regard. The authorities on which the appellants relied, Ruddock v Vardalis at [9] and [11], Anglo-Cyprian Trade Agnecies Limited v Paphos Wine Industries Limited [1951] 1 All ER 873 at 874 and Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201 at 208, do not support the proposition that the usual costs order may be displaced only on the basis of misconduct by a successful party. They support the proposition that the compensatory principle informs the usual approach to costs (costs follow the event), an approach which generally is not displaced other than in special circumstances, with such circumstances to be assessed in the context of the particular case. 9 For these reasons, insofar as the appellants' contentions of error of principle depended on the lack of any finding by the primary judge of misconduct on their part, the contentions must be rejected. The two grounds of appeal may now be determined on the basis of these principles.

Adequacy of reasons 10 Both parties assumed that the assessment of the adequacy of the primary judge's reasons should include consideration of the reasons of both 9 and 13 July 2009. This assumption is appropriate. The primary judge made the costs order on 9 July 2009 and gave reasons for so doing. He stayed that order to enable both parties to make submissions supporting a contrary order. The appellants took up that opportunity and made submissions to the primary judge on 13 July 2009 seeking different orders. The primary judge rejected those submissions and lifted the stay, giving reasons for so doing on the same day, 13 July 2009. Hence, the reasons of 9 and 13 July 2009 must be read together. 11 The primary judge's reasons of 9 July 2009 include the following at [75]-[78]: [75] In the exercise of my discretion, I do not consider that further freezing orders should be made in respect of the assets of the third and fifth respondents at this stage. I am mindful of the terms of Mr Stewart's email to Aaron Lyne of 17 October 2008, but, since then another restraining order has been made which has been registered in the High Court of New Zealand, the third and fifth respondents have each appeared unconditionally in these proceedings and they have each given undertakings to this Court in the terms indicated above. [76] In my opinion, the applicant's application for prayers for relief 4 and 6 in the Notice of Motion filed 11 May 2009 should, in all the circumstances, be dismissed. [77] However, given the progression of the matter, and the timing of the giving and amplification of the undertakings to the Court by the third and fifth respondents, I consider that the third and fifth respondents should, nevertheless, be ordered to pay one quarter of the applicant's costs of the motion. It will be appreciated that the costs of the motion as between the applicant and the second respondent have been reserved, as have the costs of the motion as between the applicant and the first and fourth respondents. [78] I will delay the implementation of the order as to costs which I have proposed, to allow oral submissions thereon to be made, should any of the applicant, the third respondent or the fifth respondent wish to do so, within the next 7 days. In that regard I reserve liberty to apply. 12 His Honour's reasons of 13 July 2009, at [10]-[14], were as follows: [10] …Whilst a successful party would normally secure an order for costs, costs do not necessarily follow the event and where special circumstances exist, it may be appropriate to make an order that a successful party or a seemingly successful party be ordered to pay costs. [11] Counsel presently appearing for the third and fifth respondent submits that the third and fifth respondents were successful on the Motion filed 11 May 2009, because the application for freezing orders against his clients were dismissed. He did not, however, address the question of what, if any, orders would have been appropriate in the exercise of the Court's discretion if his clients had not proffered the undertakings to the Court which they did, and which were refined to make them more attractive as a substitute for injunctive relief through to the last day of hearing of the Notice of Motion. [12] Senior counsel for the applicant has urged that, as he understood the reasons for judgment, freezing orders would have been made against the third and fifth respondents if the undertakings in the form in which they were ultimately given had not been proffered. [13] In my opinion, the circumstances of this case were special, and whilst I have not made an order that the third and fifth respondents pay all of the costs of the Motion, it seemed to me that it would be inappropriate to make an order for costs in the third and fifth respondent's favour or, indeed, to make no order as to costs. In the exercise of my discretion, it seemed to me appropriate that the order should be made which I proposed in paragraph [78] of my earlier reasons. [14] I have now had the benefit of detailed oral submissions from both parties in relation to the third and fifth respondents' application to have a different order made. I am not persuaded by the matters that have been advanced by counsel for the third and fifth respondents in relation to the matter, and I propose to allow the order which I earlier proposed and which is referred to in paragraph 3 of the Court's orders of 9 July 2009 to stand. In substitution for that part of order 4 which precluded the entry of order 3 before 17 July 2007, I will vary Order 4 of the orders made on 9 July 2009 to read 'Orders 1, 2 and 3 may be entered forthwith.' 13 The primary judge's reference to "the progression of the matter, and the timing of the giving and amplification of the undertakings to the Court by the third and fifth respondents" in [77] of the reasons of 9 July 2009 and to the undertakings as "proffered" and "refined to make them more attractive" in [11] of the reasons of 13 July 2009 must be read in the context of the background to the hearing. 14 In short: (1) The Commissioner's motion was listed first before Bennett J on 11 May 2009. Bennett J made ex parte restraining orders. (2) On 15 May 2009, having regard to the circumstances then apparent including the giving of certain undertakings (but not by the appellants in this appeal), Bennett J did not continue the ex parte orders. Instead her Honour referred the matter to the primary judge. Relevant circumstances then apparent included the fact that the assets in question were the subject of orders made by Hislop J on 25 October 2008 in the Supreme Court of New South Wales in response to an application by the New South Wales Crime Commission. However, an appeal against those orders was listed for hearing before the New South Wales Court of Appeal on 2 June 2009 and an appeal about the constitutional validity of the legislation under which earlier orders had been made was listed for hearing in the High Court on 26 May 2009. (3) The motion came before the primary judge on 19 May 2009. Given the hearing dates before the Court of Appeal and the High Court there was no requirement that the primary judge determine the motion on that day. (4) The motion came before the primary judge again on 20 May 2009. In resisting the Commissioner's motion, the appellants offered to give undertakings to the Court. The undertakings were to the effect that they would take no steps which may be open to them to dispose or otherwise deal with the assets restrained by Hislop J's orders of 25 October 2008 without first giving two working days' notice to the Commissioner. The Commissioner submitted that the undertakings were inadequate, specifically noting the short period of notice (two working days) and referring to correspondence pointing out other deficiencies. The appellants reconsidered their position. They offered to extend the period of notice to 14 days (in total, not 14 working days). These undertakings were offered by the appellants as corporations only and not by their directors and officers. (5) The next hearing day was 22 May 2009. The appellants handed up two documents setting out the terms of the proposed undertakings including the notice period of 14 days. The two documents confirmed the appellants' intention expressed on 20 May 2009 that the undertakings operate independently. (6) The hearing continued on 1 June 2009. The Commissioner made detailed submissions which, amongst other things, addressed alleged inadequacies of the undertakings. (7) On 5 June 2009, the next hearing day, the appellants offered a further refinement of the proposed undertakings. The refinement was to require the notice to be given to a nominated person at a nominated address. This was intended to answer one of the Commissioner's submissions that the undertakings provided only for notice and, given the many locations of the Australian Taxation Office, notice could be given in conformity with the undertakings to a remote office without coming to the attention of the relevant officers. (8) Later on 5 June 2009 the fact that the undertakings did not purport to bind the appellants' servant, agents and officers was raised in the course of submissions. The appellants considered their position and offered to extend the undertakings so as to bind directors and officers but not servants and agents. (9) Later again on 5 June 2009 the appellants offered to extend the undertakings to bind servants and agents in addition to directors and officers. The undertakings in this final form were those considered by his Honour and accepted to be a material circumstance obviating the need for the making of any restraining orders. 15 In both sets of reasons (more fully on 9 July 2009 and in an abbreviated form on 13 July 2009) the primary judge explained this sequence of amendments of the proposed undertakings. In this context, his Honour's reference to the "progression of the matter" in [75] of the reasons of 9 July 2009 must be read as a reference to this sequence. Once this is accepted it is apparent that a fair reading of his Honour's judgments discloses precisely the reason for the making of the costs order. The appellants resisted the making of any restraining orders and offered undertakings to the Court as part of their resistance. They repeatedly amended the terms of the undertakings over four hearing days. The primary judge was satisfied that the undertakings, as ultimately offered on 5 June 2009 together with another restraining order made by the High Court of New Zealand, were sufficient to obviate the need for the making of the interlocutory orders sought by the Commissioner. But, given this history, the primary judge also considered that the appellants should pay one quarter of the Commissioner's costs. 16 The reasons of 13 July 2009 are consistent with this analysis. The primary judge accepted that the appellants were the "seemingly" successful party because the Commissioner's motion was dismissed (see the reasons at [10]). His Honour, however, noted that the appellants' submissions on costs failed to address the position that would have prevailed had satisfactory undertakings not been offered, albeit after what his Honour described as a process of refinement continuing until the last day of the hearing (at [11]). 17 It is true that the primary judge's reasons do not state in terms that but for the undertakings the Commissioner would have succeeded. But no other reading of his Honour's reasons is fairly open. In these circumstances it cannot be said that the primary judge failed to give any or adequate reasons for the making of the costs order. Equally, it cannot be said that his Honour failed to identify why he considered the circumstances to be "special" (at [13] in the reasons of 13 July 2009). Read in context it is obvious that his Honour considered the circumstances to be special because, faced with the substantive application against them that they conceded to be arguable (reasons of 9 July 2009 at [17]), the appellants took some four hearing days to formulate acceptable undertakings. 18 The first appeal ground must be rejected.

Error of principle 19 The appellants contended that the costs order was "unreasonable" and "plainly unjust" in the sense referred to in House v The King at 505. The difficulty for the appellants is that the facts said to support this contention either support a contrary conclusion or by no means dictate a result different from that the primary judge adopted. Either way no error of principle sufficient to engage appellate intervention is disclosed. 20 For the reasons already given it was not necessary for the primary judge to make any finding of misconduct against the appellants before deciding that they should pay part of the Commissioner's costs. 21 It may be acknowledged that the primary judge dismissed the Commissioner's motion. As noted, the reason he did so included the fact that the appellants ultimately managed to formulate satisfactory undertakings. 22 The appellants' reliance on the Commissioner's alleged inconsistency and lack of diligence and expedition is misplaced. Even if this contention could be made good on the facts, the Commissioner's conduct was but one of many matters the primary judge was entitled to take into account. No submission was made that his Honour failed to have regard to the way in which the Commissioner conducted the case. Nor could it be. His Honour's reasons refer to the course of the hearing in considerable detail (see, as to the Commissioner's position over time, the reasons of 9 July 2009 at [14], [15] and [68]). Viewed in this way the appellants' submission about the Commissioner having relied on three successive bases to found the interlocutory orders, each of which proved unfounded, is incapable of exposing any error of principle on the primary judge's part. 23 In any event, a fair review of the matter as a whole does not bear out the facts on which this contention is founded. The appellants conceded that the Commissioner had an arguable case on the substantive claim against them (at [17] of the reasons of 9 July 2009). His Honour's reasons support the Commissioner's submission that, thereafter, the issue before his Honour with respect to the motion was one of discretion, specifically whether the undertakings proffered by the appellants were sufficient to render restraining orders otiose. The fact that, during the course of an urgent hearing in which circumstances changed, the Commissioner's submissions also changed cannot be characterised as inconsistency, lack of diligence or expedition. The appellants' submission focuses on certain aspects of the hearing to the exclusion of others and without regard to the circumstances as a whole. In consequence, the submission is inaccurate. 24 One example of this inaccuracy will suffice. The appellants emphasised the impropriety of the Commissioner's submission to the primary judge that the undertakings proffered on 20 May 2009 enabled notice to be given to a remote branch of the Australian Taxation Office. The appellants said the submission was without foundation and an unwarranted slur on the appellants and their lawyers. The appellants' response misses the point. The Commissioner's submission did nothing more than expose a defect in the drafting of the proposed undertakings. It was for the appellants alone to present undertakings in sufficient and suitable terms. It was reasonable and proper for the Commissioner to expose the legal effect of the terms of the undertakings. The issue the Commissioner was rightly exposing was one of drafting inadequacy. It was not about what the appellants or their lawyers might do as a matter of fact. It was about what the undertakings, offered by the appellants to obtain a forensic advantage in their resistance to restraining orders, permitted to be done. 25 These conclusions also dispose of the appellants' submission that the primary judge's discretion miscarried having regard to the Commissioner's alleged failure to meet the standard of the "model litigant" expected of the Crown and its lawyers. The failure, if any, is one of perception on the part of the appellants, not conduct on the part of the Commissioner. 26 The appellants' contention that the Commissioner unreasonably rejected the appellants' undertakings as offered on 20 May 2009 (thereby founding the application for indemnity costs on and from that date) cannot be accepted. The giving of undertakings in substitution for interlocutory orders that otherwise could be made is always a matter within the sole control of the party offering the undertaking. That party is responsible for the terms of the undertaking being both sufficient (as a potential substitute for interlocutory orders) and satisfactory (as an unambiguous and enforceable obligation a court properly might accept). The Commissioner was entitled to identify the inadequacies in the undertakings and press for relief in the form of orders. The Commissioner was not obliged to draft the undertakings for the appellants. The Commissioner had already disclosed the terms of orders considered adequate. The inadequacies which the Commissioner identified were real and not trivial. More to the point, the appellants modified their undertakings in an ultimately successful attempt to avoid interlocutory relief. This, of itself, is sufficient to undermine the appellants' argument that the Commissioner acted unreasonably by not accepting the undertakings as amended late on 20 May 2009. The amendments made thereafter both expanded and clarified the effect of the undertakings. The materiality of the changes made to the undertakings to the primary judge's decision is apparent from the care with which he identified the changes (see, in particular, the reasons of 9 July 2009 at [11]) and the references to the process of change in support of the costs orders (see, in particular, the reasons of 9 July 2009 at [77] and of 13 July 2009 at [11]). 27 These considerations also answer the appellants' submission that the Commissioner's position was fully protected by the orders of Hislop J and the undertaking from the New South Wales Crime Commission. If that were so the appellants need not have proffered the undertakings and repeatedly amended them. It must be inferred that the appellants acted as they did to obtain a forensic advantage to support their case that restraining orders were unnecessary. Moreover, they did obtain that advantage. Having done so they cannot properly argue that the discretion on costs miscarried because in truth they never needed that advantage. 28 Similar considerations undermine the appellants' submission that the primary judge changed his position on costs without explanation. This submission is based on a comment the primary judge made on 20 May 2009, after the undertakings were first proffered on that day, that the Commissioner: …would be running the case against the parties who have given the undertaking on the basis that if the Commissioner doesn't do any better presumably an indemnity costs order would be made against the Commissioner for wasting the court's time. 29 According to the appellants the primary judge's costs order against them represents a "U-turn" from this position without any rational basis or reason. 30 One problem with this submission is that it takes the primary judge's comment out of context. For example, immediately after the primary judge made this comment, the Commissioner made further submissions about the inadequacy of the undertakings then offered referring specifically to the two day period of notice. A short adjournment followed after which the appellants proffered amended undertakings giving 14 days' notice. In other words, even if the primary judge's comment could found the submission the appellants put, the factual conditions for the comment to operate are not met. The Commissioner did do better than the undertakings offered at the time the comment was made. 31 Another problem with the submission is that it seeks to elevate one comment throughout the course of a lengthy hearing to some form of operative representation by the primary judge as to how costs would be dealt with. This is untenable. The primary judge made many comments throughout the course of the hearing. Given the course of the hearing the primary judge's comment on 20 May 2009 was precisely that and no more - a comment, intended to test the Commissioner's position, swiftly overtaken by other events and immaterial to the ultimate exercise of discretion on costs. Such a comment did not impose any obligation on the primary judge to give reasons for taking a different course on costs. 32 The appellants also attempted to rely on the fact that the primary judge's order refers to the costs of the notice of motion filed 11 May 2009 but the transcript discloses that his Honour was dealing only with the costs of the hearing before him. Nothing, however, can turn on that fact. The course of the hearing on costs was clear. The primary judge expressly stated that he was dealing only with the costs of the hearing before him. If either party is concerned that the terms of the costs order do not reflect the primary judge's intention the remedy lies in O 35 r 7(2)(e) of the Federal Court Rules and not in this appeal. Order 35 r 7(2)(e) permits the variation or setting aside of an order after entry where the order "does not reflect the intention of the Court". That having been said, it is not apparent from the appeal that the order fails to reflect the primary judge's intention. What is clear is that if it be the case that the costs before Bennett J remain at large (as the appellants said) that fact is immaterial to this appeal.

CONCLUSION 33 For the reasons given, the appeal grounds are not sustainable. There is no basis for interfering with the primary judge's exercise of discretion. It necessarily follows that the appellants' claim for costs including indemnity costs on and from 20 May 2009 must fail. The appeal should be dismissed with costs. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Stone, Edmonds and Jagot.

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