McDermott Industries (Aust) Pty Ltd v Commissioner of Taxation

REASONS FOR JUDGMENT 1 On 13 August 2004 I delivered reasons for judgment dismissing an appeal by the applicant against the disallowance of its notice of objection made against an amended assessment of income tax in respect of the years of income ended 31 March 1994, 31 March 1995 and 31 March 1997 (McDermott Industries (Aust) Pty Ltd v Commissioner of Taxation [2004] FCA 1044). The effect of the decision was to disallow deductions claimed by the applicant ('MIA') pursuant to s 51 of the Income Tax Assessment Act 1936 (Cth) in respect of payments it made between 1993 and 1997 to a Singaporean entity, Chartering Company (Singapore) Pte Ltd ('CCS'), to charter vessels from CCS for the purpose of MIA's offshore marine construction business. These supplementary reasons consider the appropriate costs order in the circumstances. 2 It is not in dispute that pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth), costs of the proceeding are in the discretion of the Court and that such discretion is a wide discretion. The starting point is the general rule that, in the absence of special circumstances, costs follow the event: Hewlett Packard Pty Ltd v GE Capital Finance Pty Ltd [2003] FCAFC 278 citing Hughes v Western Australian Cricket Association Inc (1986) ATPR 40-748 per Toohey J at 48,136; Ruddock v Vadarlis (2001) 115 FCR 229 at [9] - [25] per Black CJ and French J. 3 MIA submits that the special circumstance which exists here arises from the application of O 62 r 24 of the Federal Court Rules ('FCR') which reads: '24 Where a party to any proceeding serves a notice disputing a fact under Order 18, rule 2 (which relates to notices to admit facts) and afterwards that fact is proved in the proceeding he shall, unless the Court otherwise orders, pay the costs of proof.' Order 18 r 2 relevantly provides: '2(1) A party to a proceeding may, by notice in accordance with Form 25 served on another party, require him to admit, for the purpose of the proceeding only, the facts or documents specified in the notice. 2(2) If, as to any fact or document specified in the notice, the party on whom the notice is served does not, within 14 days after service, serve, on the party serving the notice to admit facts or documents, a notice in accordance with Form 26 disputing that fact or document, that fact or document shall, for the purpose of the proceeding, be admitted by the party on whom the notice to admit facts or documents is served in favour of the party serving the notice.' 4 The facts relevant to the determination of the legal issues in this proceeding were set out in MIA's statement of grounds filed on 18 April 2002. 5 Although each of those facts have been asserted, accepted or not contested by the respondent ('the Commissioner') in his objection decision and his statement of facts, issues and contentions dated 21 March 2002, a significant number were not admitted by the Commissioner in response to MIA's statement of grounds. 6 On 19 June 2003 MIA served on the Commissioner a notice to admit the facts ('the first notice') not admitted by the Commissioner in his statement of grounds. That notice sought admission for the purpose of the proceedings for the following nine matters: '1 The Applicant is a body corporate. 2 The Applicant carries on business as an offshore marine construction contractor. 3 The Applicant has, at all times, carried on business in Australia. 4 For the purposes of its business referred to in paragraph 2 above, between 1 April 1993 and 31 March 1997, the Applicant: (a) bareboat chartered vessels (the "vessels") from Chartering Company Singapore Pte Ltd ("CCS") pursuant to lease agreements (the "lease agreements") with CCS; (b) at all material times used the vessels in Australia. 5 At all material times, the vessels referred to in paragraph 4(a) constituted: (a) industrial, commercial or scientific equipment; (b) substantial equipment. 6 CCS is a body corporate. 7 CCS is incorporated in Singapore. 8 CCS has, at all material times, carried on a vessel chartering business in Singapore. 9 Pursuant to the lease agreements, between 1 April 1993 to 22 May 1996 the Applicant paid charter fees ("charter fees") to CCS in respect of the vessels bareboat chartered from CCS, as follows: Period Amount 1/4/1993 - 31/3/1994 $25,235,365 1/4/1994 - 31/3/1995 $15,749,917 1/4/1995 - 31/3/1996 $ 844,586 1/4/1996 - 22/5/1996 $ 1,421,910