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[2009] FCA 80
Federal Court of Australia
2009-02-12
Siopis J, McKerracher J
Original judgment source is linked above.
BACKGROUND 1 On 14 November 2008 judgment was delivered in relation to these jointly heard applications under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) (Narbey v Commissioner of Taxation [2008] FCA 1699 (the primary reasons)). Shortly put, the applications enjoyed only limited success. 2 The primary complaint by the applicants was that the Administrative Appeals Tribunal (the Tribunal) had been in error in affirming the decisions of the Commissioner to disallow the applicants' objections to amended assessments of income tax that were issued to them. 3 By far the bulk of the reserved decision dealt with the applicants' contentions as to why the Tribunal was at fault in that regard. The applications were dismissed insofar as that primary element was concerned. 4 The Tribunal had also affirmed the Commissioner's decisions to impose penalties on the applicants. That aspect of the 'appeals' which consumed a much smaller portion of the oral and written argument and reasons was successful. 5 In addition to the primary complaint failing, the manner in which it was presented was not particularly helpful (see [34]-[36] of the primary reasons). 6 The main argument was on the question of whether or not the Tribunal had failed to adequately explain why it affirmed the decisions of the Commissioner. The applicants failed on that ground. The question of penalty was quite discreet. Although the question of penalty would have fallen away had the applicants succeeded on the main ground of appeal, their failure on the main ground of appeal meant that the question of penalty still had to be resolved. 7 The applicants contend that costs should follow the event and the Commissioner should pay the costs of the applicants as they have had success in one aspect of the appeals and the matters had been remitted to the Tribunal. The applicants have argued that while they are not successful on all of their grounds of appeal, they are ultimately successful in appealing a decision and in obtaining orders for the matter to be remitted to the Tribunal for determination according to law. In my view this is not an accurate summary of the outcome of the appeals. 8 As against the applicants' claim for costs, the Commissioner has sought an order that the applicants pay 75% of its costs. 9 The actual orders made on 14 November 2008 were as follows: 1. The application be allowed only as to the limited issue of the ruling on penalty. 2. The application otherwise be dismissed. 3. The parties are to: (a) file consequential consent orders, alternatively (b) file written submissions within 21 days, not exceeding 10 pages, on the making of appropriate consequential orders including costs. 10 On 10 December 2008 Siopis J made the following orders by consent: 1. For each applicant, that part of the decision of the Administrative Appeals Tribunal (the Tribunal) given on 30 April 2007 at Perth by which the Tribunal affirmed the decision of the respondent that the applicant was liable to pay the amount of penalty and additional tax included in the applicant's amended assessment by reason of s 226L of the Income Tax Assessment Act 1936 be set aside. 2. The matters be remitted to the Tribunal to hear and determine the question whether each applicant was liable to pay the amount of penalty and additional tax included in the applicant's amended assessment according to law. 3. The parties file written submissions, not exceeding ten pages, on the issue of costs by 19 December 2008.
GENERAL PRINCIPLES 11 Section 43(2) of the Federal Court of Australia Act 1976 (Cth) vests a discretion as to the award of costs in the Court. While costs usually follow the event, that is not always so. The power contained in s 43 is to be exercised judicially and not arbitrarily, capriciously or so as to frustrate the legislative intent (Oshlack v Richmond River Council (1998) 193 CLR 72 at [22]). 12 Where a party has been successful in only part of its claim, it may be appropriate to deprive that party of costs in relation to the unsuccessful portion. It may also be appropriate to order that party to pay the costs of the other party in relation to the unsuccessful portion. The principles enunciated by Toohey J in Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136 have been widely followed (see for example Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at [9]-[15] and Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1987) 17 FCR 211 and Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 2) [2003] FCAFC 163). His Honour summarised relevant principles as follows: 1. ordinarily, costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order; 2. where a litigant has succeeded only upon a portion of the claim, the circumstances may make it reasonable that the litigant bear the expense of litigating that portion upon which he or she has failed; 3. A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, "issue" does not mean a precise issue in the technical pleading sense, but any disputed question of fact or law.
ANALYSIS 13 In my view the Commissioner has had the predominant success in these proceedings in that the question of the deductibility of the outgoings has been determined in favour of the Commissioner. That issue was very much the larger issue in the oral and written argument and in the reasons. The secondary question of penalty would have completely fallen away had the applicants succeeded on the primary issue, but they did not. 14 For the applicants it must be said that although they failed on the primary issue, it was still necessary for them to pursue the proceedings to challenge the question of penalties. Additionally, while in the primary reasons I was critical of the failure on the part of the applicants to articulate all aspects of their arguments in the Tribunal that were not addressed by the Tribunal, that inadequacy did not significantly extend the duration of the appeal. I accept the applicants' argument that the central argument in favour of the applications was not frivolous nor did it unnecessarily prolong the hearing of the appeals. 15 In these circumstances and guided by the principles reflected in the authorities to which I have referred, I will order that the applicants pay one third of the costs of the Commissioner. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.
Associate: Dated: 12 February 2009 Counsel for the Applicants: DS Romano
Counsel for the Respondent: GR Davies QC and JD Allanson SC
Solicitor for the Respondent: Australian Government Solicitor
Date of last written submissions:: 19 December 2008
Date of Costs Judgment: 12 February 2009
Narbey
Commission of Taxation