Nelson v Commissioner of Taxation

REASONS FOR JUDGMENT 1 In Nelson v Commissioner of Taxation [2014] FCA 57 I dismissed an appeal from a decision of the Administrative Appeals Tribunal in which the Tribunal had found that the applicant, Mr Nelson, was not "carrying on a business" within the meaning of s 8-1 of the Income Tax Assessment Act 1997 (Cth) and accordingly could not claim certain deductions in respect of his claimed enterprises. After judgment was delivered the Commissioner of Taxation sought the opportunity to make submissions in respect of costs. I made timetabling orders in respect of filing submissions as to costs by both the Commissioner and Mr Nelson. 2 Both the Commissioner and Mr Nelson have now filed submissions. In summary, the Commissioner contends that costs ought properly follow the event in these proceedings. Mr Nelson submits that factors which may influence the exercise of the Court's discretion in respect of costs are: The Commissioner did not specify a claim for costs at any relevant point during the course of the litigation. The proceedings, in substance, involved an objection to competency. Rule 33.30(a) of the Federal Court Rules 2011 (Cth) provides that if a respondent has not filed a notice of objection to competency and the appeal is dismissed by the Court as not competent, the respondent is not entitled to any costs of the appeal. The Commissioner in this case did not file a notice of objection to competency, the appeal was not competent, and accordingly the Commissioner is not entitled to his costs. 3 Under s 43(2) of the Federal Court of Australia Act 1976 (Cth) the award of costs is at the discretion of the Court. This exercise of discretion must be exercised judicially. 4 As a general proposition, and in the absence of special circumstances warranting a different approach, it is proper to order that costs follow the event: Hughes v Western Australian Cricket Association (Inc.) (1986) ATPR 40-748; Oshlack v Richmond River Council (1998) 193 CLR 72 at 97; Jeffery & Katauskas Pty Limited v SST Consulting Pty Ltd (2009) 239 CLR 75 at [55]. However, as Gray J observed in Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84 at [17] no rule or principle should be applied mechanically in the determination of the question of where costs should lie in any particular case. 5 In this case the Commissioner has been wholly successful in respect of the application before the Court. Mr Nelson submits that the Court ought take into account the fact that the issue of costs was not raised during the hearing of the application, but as the Full Court recently observed in Li v Chief of Army (No 2) (2013) 210 FCR 356 at [8] the question of costs is not infrequently left for argument following the decision. While perhaps slightly surprising that the Commissioner did not raise the issue of costs during the hearing, the parties have been provided with both time and the opportunity to make supplementary submissions regarding costs. 6 In relation to the substantive nature of Mr Nelson's appeal I do not accept his submission that, in effect, the proceedings involved an objection to the competency of the appeal. As I found in the primary judgment, I was satisfied that the Tribunal had applied correct principles of law in determining the question of fact whether Mr Nelson was "carrying on a business". The case was argued before the Court by Mr Nelson on the basis that the Tribunal had improperly applied the law, and successfully defended by the Commissioner on that basis. No error of law in the decision of the Tribunal was demonstrated by Mr Nelson, and the appeal was properly dismissed. 7 No reason has been demonstrated to warrant any order other than that the costs of the Commissioner be paid by Mr Nelson. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier.