Maurici v Chief Commissioner of State Revenue

LOWER COURT JURISDICTION : Land & Environment Court LOWER COURT LEC 30039/99 FILE NUMBER(S) : LOWER COURT Cowdroy J, Lloyd J JUDICIAL OFFICER :

COUNSEL : C J Birch SC/J Stoljar (Appearing for Maurici) B J Preston SC/J H H Blackman (Appearing for Chief Commissioner of State Revenue) SOLICITORS : Speed & Stracey (for Maurici) I V Knight, Crown Solicitor (for Chief Commissioner of State Revenue) CATCHWORDS : LAND TAX - assessment of land value - definition of land improvements includes retaining walls - methodology adopted for assessment of land value did not involve error of law - no deduction to be made for scarcity factor - PRACTICE AND PROCEDURE - costs - Land and Environment Court Act - Class 3 proceedings - practice direction on costs not binding Land and Environment Court Act 1979 Taxation Administration Act 1996 LEGISLATION CITED : Land Tax Management Act 1956 Valuation of Land Act 1916 Interpretation Act 1987 Supreme Court Act (1970) NSW Morrison v Federal Commissioner of Land Tax (1914) 17 CLR 498 McGeoch v Federal Commissioner of Land Tax (1929) 43 CLR 277 Batchelor & Co Pty Limited v Websdale (1962) 63 SR (NSW) 49 Houssein v Under Secretary of Industrial Relations and Technology (1982) 148 CLR 88 Yates Property Corporation Pty Limited v Darling Harbour Authority (1991) 24 NSWLR 156 Cape Brandy Syndicate v IRC [1921] 1 KB 64 Partington v AG (1869) LR 4 HL 100 Gollan v Randwick Municipal Council [1961] AC 82 Wunderlich Ltd v Valuer-General (1959) 5 LGRA 50 CASES CITED: Sheath v Valuer-General (1963) 64 SR (NSW) 415 Tetzner v Colonial Sugar Refining Co Ltd [1958] AC 50 Evans v Bartlam [1937] AC 480 Norbis v Norbis (1986) 161 CLR 513 Latoudis v Casey (1990) 170 CLR 534 Oshlack v Richmond River Council (1998) 193 CLR 72 North Broken Hill Ltd v Tumes (1999) 18 NSWCCR 412 Vetter v Lake Macquarie City Council [2001] HCA 12 In the Estate of Murray (1961) 62 SR (NSW) 485 Gregory v FCT (1971) 123 CLR 547 The Estate of Bruce Smith v FCT (1973) 139 CLR 340 DECISION : Matter 40067/00 - Summons for leave to appeal dismissed with costs. Orders made; Matter 40069/00 - Leave to appeal granted. Orders made

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

HANDLEY JA BEAZLEY JA GILES JA 20 June 2001

ANTHONY PHILLIP MAURICI v CHIEF COMMISSIONER OF STATE REVENUE CHIEF COMMISSIONER OF STATE REVENUE v ANTHONY PHILLIP MAURICI LAND TAX - assessment of land value - definition of land improvements includes retaining walls - methodology adopted for assessment of land value did not involve error of law - no deduction to be made for scarcity factor

PRACTICE AND PROCEDURE - costs - Land and Environment Court Act - Class 3 proceedings - practice direction on costs not binding The appellant taxpayer sought leave to appeal from a decision in the Land and Environment Court (Cowdroy J) in Class 3 proceedings arising from the taxpayer's objection on valuation grounds to a land tax assessment. The taxpayer also appealed from a decision of Lloyd J dealing with the question of costs in the Class 3 proceedings before Commissioner Nott. The Chief Commissioner also sought leave to appeal from the decision of Cowdroy J. Three grounds for appeal against the land value determined by Commissioner Nott were advanced by the taxpayer: (1) that a retaining wall supporting filled land behind the wall was not a land improvement which had to be included in determining the land value; (2) that Commissioner Nott's valuation approach was incorrect; and (3) that the Commissioner had erred in adopting a land value based on the scarcity of vacant residential land in Hunter's Hill. HELD, dismissing the taxpayer's summons for leave to appeal from the decision of Cowdroy J and allowing his appeal from Lloyd J: (1) The definition of land improvements in s 4(1) of the Valuation of Land Act is exhaustive. Where the improvement of the surface of sloping land by filling and levelling cannot be achieved without the construction of retaining walls, such an improvement necessarily includes the retaining wall. It is the improvement of the land surface which is to be included in land improvements, and hence in the land value, and the retaining wall is a necessary and inseverable part of that improvement. (2) Commissioner Nott's decision to determine land value on the basis of comparable sales of vacant land, rather than improved land, was a factual decision which was not vitiated by any error of valuation principle. (3) When determining the land value of developed land, no deduction should be made for the "scarcity component" where there is a premium for undeveloped land in the locality. The land value is the price that the land would realise on sale assuming that the improvements, other than land improvements, had not been made. The hypothetical sale is of vacant land, and if vacant land commands a premium in the market, the hypothetical sale would realise that premium. (4) Lloyd J erred in holding that para 10A of the Practice Directive dealing with costs in Class 3 proceedings was declaratory of the practice of the Court because the reported cases reflected a difference of views. His Honour also erred in treating para 10A as applicable to the case before him and by confining his attention to the question of exceptional circumstances. ORDERS

No. 40067/00 (1) Summons for leave to appeal against the decision of Cowdroy J dismissed with costs; (2) Summons for leave to appeal against the decision of Lloyd J treated as an appeal, subject to the appellant filing a notice of appeal within 14 days; (3) Appeal from Lloyd J allowed with costs; (4) Orders of Lloyd J set aside and notice of motion of 3 December 1999 remitted to the Land and Environment Court to be heard and determined in accordance with the decision of this Court; (5) Costs of the first hearing of the notice of motion before Lloyd J to be in the discretion of the Judge conducting the re-hearing. No. 40069/00 (1) Leave to appeal granted subject to the claimant filing the notice of appeal within 14 days; (2) Appeal allowed; (3) Orders of Cowdroy J of 23 December 1999 set aside; (4) In lieu thereof order that the appeal from the decision of Commissioner Nott be dismissed with costs; (5) Respondent to have a certificate under the Suitors Fund Act in respect of the costs in this Court . THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

ANTHONY PHILLIP MAURICI v CHIEF COMMISSIONER OF STATE REVENUE CHIEF COMMISSIONER OF STATE REVENUE v ANTHONY PHILLIP MAURICI

1 HANDLEY JA: These proceedings comprise a summons by Mr Maurici (the taxpayer) for leave to appeal from a decision of Cowdroy J given in Class 3 proceedings in the Land and Environment Court and from a decision of Lloyd J dealing with the question of costs in the proceedings before Commissioner Nott, and a cross-summons by the Chief Commissioner for leave to appeal from the same decision of Cowdroy J. Leave to appeal from the decision of Cowdroy J is required by s 57(3)(b) of the Land and Environment Court Act (Court Act) because the proceedings before Cowdroy J were an appeal on a question of law under s 56A from a decision of Commissioner Nott. As will appear, leave is not required to appeal from the decision of Lloyd J. It was common ground that both matters should be fully argued and that if the Court granted leave the hearing should be treated as the hearing of the appeal. 2 The taxpayer commenced the Class 3 proceedings on 18 March 1999 as an appeal against the disallowance by the Chief Commissioner on 10 February 1999 of the taxpayer's objection dated 6 November 1998, on valuation grounds, to a land tax assessment dated 8 September 1998. The assessment was based on a land value of $2,440,000 for the taxpayer's property at 66 The Point, Woolwich, which had been determined by the Valuer-General as at 1 July 1997. The right of appeal in such a case, conferred by s 96 of the Taxation Administration Act 1996 and s 38A of the Land Tax Management Act, lies to the Land and Environment Court. 3 The appeal was assigned to Commissioner Nott and the hearing commenced on 9 September 1999. On 26 August the Valuer-General, with the ostensible authority of the Chief Commissioner, wrote an open letter to the taxpayer informing him that he had decided to reduce the land value of his home to $2,000,000. A draft consent order disposing of the taxpayer's appeal on this basis was enclosed, but it made no provision for the Chief Commissioner to pay any part of the taxpayer's costs. The taxpayer elected to proceed and sought a land value of $1,125,000. Commissioner Nott allowed the appeal and determined a land value of $1,950,000. 4 The taxpayer appealed to a Judge of the Court under s 56A which limited the appeal to questions of law. Three of the grounds of appeal were pressed. The first of these was that a retaining wall supporting filled land behind the wall was a land improvement as defined which had to be excluded in determining the land value. The second concerned Commissioner Nott's valuation approach, and the third was that he had erred in adopting a land value based on the scarcity of vacant residential land in the Hunter's Hill municipality. 5 The appeal was heard by Cowdroy J who, in a reserved judgment delivered on 23 December 1999, upheld the taxpayer's first and third grounds but rejected the second. He ordered that the proceedings be remitted to Commissioner Nott for re-hearing. Under s 69(8) of the Court Act Commissioner Nott could not deal with the costs of the proceedings before him, and that question had to be decided by a Judge. The taxpayer's motion seeking an order that the Chief Commissioner pay his costs of those proceedings was heard by Lloyd J and dismissed on 14 April 2000.

Retaining wall 6 This question arises under the definition of land value in s 6A of the Valuation of Land Act read with the definition of land improvements. Section 6A(1) (inserted by Act No. 126 of 1978) provides: "The land value of land is the capital sum which the fee-simple of land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made". 7 The definition of land improvements in s 4(1), inserted by Act No. 126 of 1978, and amended in 1996 by the addition of para (d1), provides: "Land improvements means - (a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths, (b) the picking up and removal of stone, (c) the improvement of soil fertility or the structure of soil, (d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation, (d1) without limiting pargraph (d), any excavation, filling, grading or levelling of land for the purpose of the erection of a building, structure or work, not being for the purpose of irrigation or conservation, (e) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and (f) underground drains". 8 The 1978 amendments, which included land improvements in the land value, reversed the construction of the definition of unimproved value adopted in Morrison v Federal Commissioner of Land Tax (1914) 17 CLR 498 and McGeoch v Federal Commissioner of Land Tax (1929) 43 CLR 277. This had required the increase in value due to land improvements such as the clearing of country land (Morrison's case), or the eradication of prickly pear (McGeoch's case) to be deducted in arriving at its unimproved value. 9 The appropriateness of either including or excluding the value of land retaining walls arose in relation to both the taxpayer's land and other land which had been the subject of comparable sales. Commissioner Nott noted the contrast between para (d), which did not refer to retaining walls, and para (e), which required in terms that retaining walls for reclaimed land be included as part of the land improvement. Commissioner Nott held that since the retaining walls (which in one case were about 3 metres high) were necessarily required for the existence of the levelled, filled land, they were part of the land improvements and no amount should be deducted for such walls in arriving at the land value. 10 Cowdroy J did not agree. He said: "The sole test to determine whether the wall constitutes a land improvement is found in sub paragraph (d) of the definition … Whilst the filling and levelling is a 'land improvement' in accordance with the definition, the wall is not. It is irrelevant that the fill might not be capable of supporting itself. Any structure supporting such fill is not a land improvement …". 11 The definition of land improvements in s 4(1) is an exhaustive one, being introduced by the word "means" (see Batchelor & Co Pty Limited v Websdale (1962) 63 SR (NSW) 49, 52). The taxpayer's argument was based (although not in terms) on the rule of construction: "expressio unius est exclusio alterius" (an express reference excludes an implied one). It depended on the express reference to retaining walls in para (e), and the absence of such a reference in para (d). Such an argument is to be viewed with caution, the principle being that stated in Houssein v Under Secretary of Industrial Relations and Technology (1982) 148 CLR 88, 94: "That maxim must always be applied with care, for it is not of universal application and applies only when the intention it expresses is discoverable upon the face of the instrument … It is 'a valuable servant but a dangerous master' Colquhoun v Brooks (1888) 21 QBD 52, 65". 12 The definition of land improvements, read with s 6A(1), requires the additional value due to an improvement in the land surface by filling and levelling to be included in the land value. The word "improvement" is a noun. The improvement of the surface of sloping land (such as that under consideration here) by filling and levelling cannot be achieved without the construction of retaining walls. 13 Such an improvement necessarily includes the retaining wall without which the land could not be filled and levelled. It is the improvement of the land surface which is to be included in land improvements, and hence in the land value, and the retaining wall is a necessary and inseverable part of that improvement. The fill without the wall would not be level, would not add the same value to the land, and would be a different improvement. In my judgment Cowdroy J erred in law in reversing Commissioner Nott on this issue. Leave to appeal from the decision of Cowdroy J in this respect should be granted and the appeal should be allowed.

Commissioner Nott's valuation methodology 14 Commissioner Nott accepted the valuation evidence of Mr Croker for the Chief Commissioner in preference to that of Mr Byron, the valuer called for the taxpayer. Mr Byron sought to deduce the land value of the taxpayer's land from comparable sales of improved land with substantial dwellings, by deducting the value of the improvements. Mr Croker preferred to rely upon comparable sales of vacant land. Commissioner Nott directed himself that the method of obtaining the land value by deducting the added value of the improvements from the contract price for an improved property was acceptable in principle but said that in determining the land value of residential properties "this method is generally not as reliable as using sales of vacant land or of land where the improvements may be regarded as having little or no value". 15 The difficulty Commissioner Nott saw with Mr Byron's approach was his method of arriving at the value of the improvements on the comparable properties. He did this by equating the added value of the improvements to a figure derived by deducting the renovation costs (that is the cost of renovating the existing improvements to new condition without structural repairs) from the current cost of constructing those improvements. Commissioner Nott thought that this approach would inflate the value of the existing improvements and that their value should not be determined in this way. 16 The Judge was not persuaded that Commissioner Nott erred in law in adopting this approach and he rejected the second ground of challenge. Commissioner Nott had rejected Mr Byron's method of arriving at the value of improvements on factual grounds. The taxpayer's evidence did not include any alternative method of arriving at such value, and therefore Commissioner Nott could not make any sensible use of Mr Byron's comparable sales. 17 Having rejected Mr Byron's approach he had to rely on the comparable sales of vacant land adopted by Mr Croker. He favoured this course in any event because he thought it was a simpler and more reliable method of arriving at the land value of comparable improved land. His decision to accept and act on these comparable sales was a factual one which was not vitiated by any error of valuation principle. See Yates Property Corporation Pty Limited v Darling Harbour Authority (1991) 24 NSWLR 156 at 177-8. The taxpayer's summons for leave to appeal from this part of the Judge's decision should be dismissed with costs.

The scarcity factor 18 It appears that the market value of undeveloped land in Hunters Hill municipality was inflated because there was very little land of this type left, and buyers were prepared to pay a premium to secure it. The Chief Commissioner's valuer acknowledged that the determined land value of the taxpayer's property included a component for this scarcity factor. The taxpayer's property of course had a substantial house erected on it, and attracted no such premium on the market. Commissioner Nott rejected an argument by counsel for the taxpayer that a deduction should be made for this scarcity factor when using sales of comparable vacant land to deduce the land value of developed land. Cowdroy J upheld this submission saying: "Had it not been for the acknowledgment by the respondent of the existence of the scarcity factor, this ground would be rejected. However as it is acknowledged to exist and as it is not clear whether such factor has caused the sales of vacant parcels of land to be inflated, this issue must be addressed. I uphold this ground of appeal". 19 Counsel for the Chief Commissioner contended before us that a deduction for this factor would be contrary to the terms of s 6A(1). On the other hand counsel for the taxpayer contended that it was both artificial and unfair to determine the land value of what was in fact developed land on the basis that it attracted the premium for vacant land, and sought support from the definition of improved value in s 5 and from s 6A(2). 20 There can be no doubt that the result contended for by the Chief Commissioner is artificial and leads to higher land values. He contends that the statutory assumption in s 6A(1) ("assuming that the improvements … had not been made") must be applied property by property. By doing this each developed parcel in Hunter's Hill municipality attracts the scarcity premium commanded by the few vacant parcels which would not exist if every parcel was undeveloped. This method of valuation is also said to be unfair because the taxpayer could not realise this scarcity premium on a sale of his developed block. 21 Submissions of this generality, which are not anchored in the statutory text, carry little weight. As Rowlatt J said in Cape Brandy Syndicate v IRC [1921] 1 KB 64, 71: "There is no equity as to a tax". Earlier Lord Cairns had said in Partington v AG (1869) LR 4 HL 100, 122: "… as I understand the principle of all fiscal legislation it is this: If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. … If there be admissible, in any statute, what is called an equitable construction, certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute". 22 The argument based on artificiality is particularly doubtful when the Court is considering the construction of s 6A(1) which requires the land value of developed land to be determined on a notional sale of the land without its improvements, the subject matter of the sale being a notional fee simple, not the actual title. See Gollan v Randwick Municipal Council [1961] AC 82. Any enhancement or reduction in value due to the existence of easements, covenants, leases and other restrictions in the title must be ignored. Such matters can have a significant effect on market values in the real world. 23 The argument based on s 5 of the Valuation of Land Act was that the scarcity premium would not be reflected in the improved value, and the difference between the improved and land values should reflect the real value of the improvements. However, as is clear, the land value is more or less artificial and the difference between the two values must also be artificial. It cannot be permissible to use the difference between the two values to control the definition of one of them when the statute does not contemplate that the two values will be used in this way. I reject the argument based on s 5. 24 Section 6A(2) provides: "Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that: (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and (b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used, but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made". 25 This provision may be traced to s 2 of Act No. 31 of 1959 which added ss (2) to the then definition of unimproved value in s 6 of the Valuation of Land Act. The two provisions are identical subject to immaterial drafting changes. The definition was amended to reverse the effect of the decision in Wunderlich Ltd v Valuer-General (1959) 5 LGRA 50 in which Hardie J held that existing use rights under planning legislation, which could add appreciably to the market value of the land, had to be ignored in determining its unimproved value. Existing use rights typically depend on the presence of improvements on the land but these and their consequences had to be disregarded in arriving at the unimproved capital value. 26 Paragraph (a) creates no difficulty because it only requires an assumption that the existing use of the land may be continued. Paragraph (b), on the other hand, requires the assumption that the improvements "may be continued", although ss (1) requires the assumption that they had not been made. This may create difficulties in applying both provisions where there are existing use rights, but it is not necessary to resolve these in the present case. 27 In Sheath v Valuer-General (1963) 64 SR (NSW) 415, 419 Hardie J said that the predecessor of ss (2) was "merely directed to removing … any depressing effect on selling price caused by town planning or other statutory restrictions on the user consequent on the statutory assumption that the subject area at the date of valuation had no buildings or other improvements upon it". In the present case no assumption, contrary to the fact, is required to be made in accordance with ss (2) because the existing use is permissible, and is not dependent on the existence of improvements. In my judgment ss (2) may be ignored where, as in this case, it has no practical operation. 28 The taxpayer's argument for excluding the effect of the scarcity factor when determining the land value is contrary to the text of s 6A(1). The land value is the price that the land would realise on sale "assuming that the improvements … other than land improvements … had not been made". The hypothetical sale is of vacant land, and if vacant land commands a premium in the market, the hypothetical sale would realise that premium. No such assumption is required to be made about any other land. The result therefore is that the subject land is to be valued as vacant, but located in the neighbourhood as it exists in the real world. 29 The question is actually covered by the decision in Tetzner v Colonial Sugar Refining Co Ltd [1958] AC 50 where Lord Keith, speaking for the Judicial Committee said, at 57, in relation to similar legislation: "What … is required … is that the physical improvements, with any value which they attach to the land on which they are situated, be excluded from the valuer's computation. The land will then be valued as land void of buildings but situated in the community with the amenities and facilities which have grown up around it. Their Lordships see no objection in the process of valuation to regarding the land as land situated in a sugar town. The valuer need not shut his eyes to the fact that there is a sugar manufacturing industry in existence …". 30 Equally it may be said in the present case that the valuer need not shut his eyes to the fact that Hunter's Hill exists as a developed residential suburb. The taxpayer's third challenge to the valuation adopted by Commissioner Nott must also be rejected. Leave to appeal from the decision of Cowdroy J in this respect should be granted and the appeal should be allowed.

The cost of the proceedings before Commissioner Nott

31 The assessment was based on a land value of $2,440,000. The taxpayer's objection sought a land value less than $1 million. On 26 August 1999, after the proceedings had been fixed for hearing before Commissioner Nott on 9 September, the Valuer-General wrote informing the taxpayer that the value of his land would be reduced to $2 million. The Valuer-General offered to sign a consent order to this effect with no order as to costs. The taxpayer elected to proceed contending for a land value of $1,250,000. 32 Lloyd J said that although the Court had a wide discretion under s 69 of the Court Act to make an order for costs, it had to be exercised judicially in accordance with established principles. He considered that these were established by decisions of Talbot J and Stein J and were now settled in terms of the Practice Direction. The relevant paragraph added in December 1995 as para 10A provides:

"Costs in Class 3 The practice of the Court is that no order for costs is made in valuation appeals, farmland rating appeals (and other rating appeals) and subdivision appeals in Class 3 of the Court's jurisdiction, unless the circumstances are exceptional". 33 Paragraph 10A does not apply to all proceedings in Class 3 but the parties treated it as applicable to appeals against land tax assessments perhaps because they considered that such appeals were valuation appeals. The Judge said, incorrectly, that the proceedings before Commissioner Nott were an appeal under s 38 of the Valuation of Land Act. Land tax appeals in Class 3 are in one sense valuation appeals, but so in one sense are claims for compensation where the resuming authority's offer was based on the Valuer-General's valuation. 34 A successful appeal to the Court under s 38A of the Land Tax Management Act alters the appellant's land tax assessment. It will not directly alter the land value determined under the Valuation of Land Act, but may do this indirectly because it gives the Valuer-General "sufficient cause" to exercise his power under s 17(1) of the Valuation of Land Act to amend the valuation of his own motion. 35 Section 19 of the Court Act defines the cases in Class 3 and par (b) covers appeals under s 38 of the Valuation of Land Act, and par (b1) added later covers land tax appeals. It is therefore arguable, to say the least, that a land tax appeal is not a valuation appeal for the purposes of para 10A. 36 The Valuer-General has no direct financial interest in his valuations, and may have to defend appeals by an owner under s 29 (3A) or by a rating and taxation authority under s 31. 37 Whatever the justification for par 10A of the Practice Direction in relation to appeals under the Valuation of Land Act different considerations apply to appeals from taxation assessments levied by the State. 38 A taxpayer should not be faced, by the Practice Direction of a Court, with the unpalatable choice between submitting to an excessive tax assessment, or having to meet his own costs of a successful appeal. This is especially so in a valuation case where the costs will be substantial and could equal or exceed the tax directly in dispute. A Practice Direction with that effect would be a barrier against taxpayers wishing to exercise their rights of appeal against assessments and would tend to coerce them into submitting to excessive assessments. On the other hand there may be some taxpayers who prefer an appellate regime where they do not run the risk of having to pay the costs of the revenue authority if they should lose. One of the difficulties with par 10A construed as applying to land tax appeals is that the taxpayer was not given any choice. 39 If para 10A of the Practice Direction applies to appeals under the Land Tax Management Act it creates an anomaly because land tax appeals are also heard by the Supreme Court. In the Supreme Court taxpayers run the risk of costs orders being made against them if they fail, but have the prospective benefit of such orders if they succeed. If para 10A of the Practice Direction applies and is valid, taxpayers who appeal to the Land and Environment Court face the near certainty of having to bear their own costs, whatever the result, unless they can establish "exceptional circumstances". 40 Section 69(2) of the Court Act provides: "(2) Subject to the Rules, and subject to any other Act: (a) costs are in the discretion of the Court, (b) the Court may determine by whom and to what extent costs are to be paid, and … …". 41 Rules have not been made dealing with this question and the Practice Direction is not a rule of court and was not made in accordance with s 74(1). Section 74(7) provides that a Practice Note or similar document issued by or on behalf of the Court is "taken to be" a statutory rule for the purposes of Pt 6 of the Interpretation Act. This applies to such instruments the provisions for disallowance of statutory rules by either House of Parliament, but does not make the Practice Direction a rule of court for the purposes of s 69(2). 42 Para 10A of the Practice Direction was not declaratory of the practice of the Court because the reported cases reflected a difference of views on the appropriateness of ordering costs in valuation appeals under the Valuation of Land Act. Lloyd J considered that this difference had been "settled" by the Practice Direction, but such a document issued by a Head of Jurisdiction is not an appropriate way of resolving differences of opinion on questions such as this. The question could have been resolved by a rule of court. 43 We were not referred to any case dealing with the question of costs in a land tax appeal in Class 3, and it cannot be said that there was an existing practice in such cases. Moreover, as I have endeavoured to demonstrate, there are special considerations in land tax appeals which do not exist in valuation appeals under the Valuation of Land Act. 44 A major difficulty with the Practice Direction, construed as applying to land tax appeals in Class 3, is that it purports to impose a rigid fetter on the judicial discretion as to costs conferred by s 69(2). Appellate courts have held more than once that judges should not fetter judicial discretions with self-imposed rigid rules. In Evans v Bartlam [1937] AC, which considered the discretion to set aside a default judgment, Lord Atkin said at 480: "The discretion is in terms unconditional. The courts, however, have laid down for themselves rules to guide them in the normal exercise of their discretion … but … in my opinion the court does not, and I doubt whether it can, lay down rigid rules which deprive it of jurisdiction". 45 Lord Wright said at 488-9: "To quote … from Bowen LJ in Gardner v Jay 29 ChD 50, 58: 'When a tribunal is invested by Act of Parliament or by Rules with a discretion, without any indication in the Act or Rules of the grounds upon which the discretion is to be exercised, it is a mistake to lay down any rules with a view to indicating the particular grooves in which the discretion should run, for if the Act or the Rules did not fetter the discretion of the Judge why should the Court do so?' … It is, however, often convenient in practice to lay down, not rules of law, but some general indications to help the court in exercising the discretion … As Kay LJ said in Jenkins v Bushby [1891] 1 Ch 484, 495: ' The Court cannot be bound by a previous decision to exercise its discretion in a particular way, because that would be in effect putting an end to the discretion. A discretion necessarily involves a latitude of individual choice according to the particular circumstances'." 46 In Norbis v Norbis (1986) 161 CLR 513 at 519-20, Mason and Deane JJ said: "It has sometimes been said by judges of high authority that a broad discretion left largely unfettered by Parliament cannot be fettered by the judicial enunciation of guidance in the form of binding rules governing the manner in which the discretion is to be exercised … however, it does not follow that, because the discretion is expressed in general terms, Parliament intended that the court should refrain from developing rules or guidelines affecting its exercise … Guidelines were what Lord Wright had in mind in Evans v Bartlam when he said [1937] AC at page 488: 'It is … often convenient in practice to lay down, not rules of law, but some general indications to help the court in exercising the discretion …'." 47 The exercise of a judicial discretion in making or refusing to make an order as to costs was reviewed in Latoudis v Casey (1990) 170 CLR 534 and Oshlack v Richmond River Council (1998) 193 CLR 72. The first of the cases dealt with the power of a court of summary jurisdiction to order an informant to pay the defendant's costs of successfully defending criminal proceedings. Mason CJ identified a principle that costs are generally awarded by way of indemnity to a successful party (543) and a further principle that (542): "In ordinary circumstances it would not be just or reasonable to deprive a defendant who has secured the dismissal of a criminal charge brought against him or her of an order as to costs. To burden a successful defendant with the entire payment of the costs of defending the proceedings is … to expose the defendant to a financial burden which may be substantial, perhaps crippling …". 48 Toohey and McHugh JJ, who with the Chief Justice formed the majority, expressed similar views (565, 566, 567, 568). 49 Oshlack v Richmond River Council concerned the power to award costs conferred by s 69(2) of the Court Act as it applies in proceedings in Class 4. The minority, Brennan CJ and McHugh J, held that the power should have been exercised in favour of a successful defendant in that case. The majority, Gaudron and Gummow JJ and Kirby J, held that the trial Judge had not erred in holding that the character of the proceedings as public interest litigation was a reason for not making an order for costs in favour of a successful defendant. 50 The majority noted that s 69(2) was indistinguishable from corresponding provisions in the Supreme Court Act 1970 (NSW) and earlier legislation in the United Kingdom. Gaudron and Gummow JJ referred at 81 to: "… the general proposition that it is inappropriate to read a provision conferring jurisdiction or granting powers to a court by making conditions or imposing limitations which are not found in the words used". 51 They recognised (86, 87, 88) the general principles that the Court must determine the matter from the perspective of the successful party who should ordinarily be compensated by the unsuccessful party for the expense of the litigation. Similar views were expressed by Kirby J as to the need to avoid imposing rigid requirements which would gloss the statute (121, 122) and the general practice by which costs are ordinarily ordered in favour of the successful party (122, 126). 52 Paragraph 10A of the Practice Direction construed as applicable to land tax appeals in Class 3, which purports to impose a rigid rule that costs should only be awarded in favour of the successful party in exceptional circumstances, cannot be given the effect which Lloyd J gave to it. Lloyd J treated para 10A as applicable to the case before him, and confined his attention to the question of exceptional circumstances. His exercise of discretion therefore miscarried. 53 This Court has jurisdiction under s 57(1) of the Court Act to entertain the appeal from the orders of Lloyd J. Leave to appeal is not required by s 57(3) because the proceedings before Lloyd J were original and not appellate in character, Commissioner Nott having no power to deal with a question of costs (Court Act s 69(8)). Moreover leave to appeal is not required by s 57(4) either since the orders of Lloyd J were final. Section 57(2) which defines the powers of this Court on appeal provides: "(2) On the hearing of an appeal under subsection (1), the Supreme Court shall: (a) remit the matter to the Court for determination by the Court in accordance with the decision of the Supreme Court; or (b) make such other order in relation to the appeal as seems fit". 54 This section is indistinguishable from s 32(2) of the Compensation Court Act. 55 In North Broken Hill Ltd v Tumes (1999) 18 NSWCCR 412 this Court held that s 32 confined its jurisdiction to correcting errors of law. Where decisions of the Compensation Court which involved fact finding or the exercise of a discretion were set aside for error of law, this Court had no power to make its own findings of fact as on a re-hearing, nor could it re-exercise the discretion but was bound to remit the proceedings to the Compensation Court for re-determination according to law. 56 In Vetter v Lake Macquarie City Council [2001] HCA 12, 8 March 2001, the majority did not find it necessary to consider this question but Kirby J, without referring to the decision of this Court in North Broken Hill v Tumes, came to the same conclusion. 57 In my opinion therefore the taxpayer's appeal against the decision of Lloyd J should be allowed and the notice of motion remitted to the Land and Environment Court to be heard and determined by Lloyd J or another Judge in accordance with the decision of this Court. 58 Although the discretion as to costs must be re-exercised by the Land and Environment Court, and not by this Court, relevant decisions not referred to in argument or in the judgment below where taxpayers had partial success on valuation issues in taxation appeals include In the Estate of Murray (1961) 62 SR (NSW) 485, 491-2 per Sugerman J, 496 per Wallace J; Gregory v FCT (1971) 123 CLR 547; and The Estate of Bruce Smith v FCT (1973) 130 CLR 340. 59 The open offer by the Valuer-General will be a relevant consideration in the exercise of the Judge's discretion. The offer could be viewed as analogous to an offer of compromise. If so the taxpayer bettered the offer at the trial, although only by $50,000, and the offer made no provision for payment of any part of the taxpayer's costs up to that date. 60 Guidance for the future may possibly be obtained from the treatment of taxation appeals in the Federal jurisdiction. These may be heard, at the election of the taxpayer, either in the Federal Court (formerly the High Court or the Supreme Court), or by the Administrative Appeals Tribunal (formerly the Taxation or Valuation Boards of Review). Orders as to costs have ordinarily been made in Federal taxation appeals heard by a Court but are not made when such appeals are heard by an Administrative Tribunal. Consideration could be given to the amendment of para 7 of the Practice Direction 1993, at least in relation to land tax appeals, to give a taxpayer appellant an election to be exercised prior to the call-over between an administrative review and a judicial determination with appropriate costs implications. This could be seen as a reason for an appeal being heard by a Judge or for proceedings before a Commissioner being treated as adverse litigation. 61 The following orders should be made:

No. 40067/00 (1) Summons for leave to appeal against the decision of Cowdroy J dismissed with costs; (2) Summons for leave to appeal against the decision of Lloyd J treated as an appeal, subject to the appellant filing a notice of appeal within 14 days; (3) Appeal from Lloyd J allowed with costs; (4) Orders of Lloyd J set aside and notice of motion of 3 December 1999 remitted to the Land and Environment Court to be heard and determined in accordance with the decision of this Court; (5) Costs of the first hearing of the notice of motion before Lloyd J to be in the discretion of the Judge conducting the re-hearing.

No. 40069/00 (1) Leave to appeal granted subject to the claimant filing the notice of appeal within 14 days; (2) Appeal allowed; (3) Orders of Cowdroy J of 23 December 1999 set aside; (4) In lieu thereof order that the appeal from the decision of Commissioner Nott be dismissed with costs; (5) Respondent to have a certificate under the Suitors Fund Act in respect of the costs in this Court . 62 BEAZLEY JA: I agree with Handley JA. 63 GILES JA: I agree with the orders proposed by Handley JA and with his reasons, save that I would prefer not to enter upon the matters for the Land and Environment Court on which he touches in paras 58-60.

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