Orica Ltd v Commissioner of Taxation

REASONS FOR JUDGMENT 1 On 10 March 2010 the Court declared that the net capital gain amount of $264,540,764 included in Orica's amended notice of assessment issued on 11 October 2004, in respect of the year ending 30 September 1998, is excessive. The Court ordered that: (a) the appeal be allowed; (b) the amended assessment be set aside; (c) the matter be remitted to the Commissioner for determination in accordance with the Court's reasons; and (d) the parties make written submissions as to costs. 2 The parties filed submissions on costs. Orica submits that having regard to all the circumstances, there should be no order as to costs. It relies on Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 (Bowen Investments) at [3]‑[5]. The "circumstances" relied on are: (a) the Commissioner was not successful on three of the four substantive grounds pleaded by him, and a substantial part of the written submissions and argument at trial was taken up with these three grounds; (b) the grounds on which the Commissioner did not succeed were raised (by an amended SFIC) more than three years after the proceeding began, and resulted in Orica incurring unnecessary additional costs, including costs of an additional expert's report; (c) if the Commissioner had confined himself to the issues in respect of which he was successful, the proceeding would have been heard much earlier and the work required to prepare the case for trial would have been substantially reduced; and (d) Orica's appeal was allowed, although it was unsuccessful on the substantive issue. 3 Orica submits that in the above circumstances it is reasonable that costs reflect the fact that the Commissioner succeeded on only a particular issue. The making of no order as to costs is a proper reflection of the number of issues in respect of which the Commissioner did not succeed as well as those in respect of which he did succeed. 4 The Commissioner submits that having regard to his success on both substantive issues in the case, he should have his costs in accordance with the ordinary rule. He describes the two substantive issues as whether Orica was liable to tax on a capital gain and whether it had adopted a reasonably arguable position in lodging a return that did not include that capital gain (ie the penalty tax issue). 5 He says that the "four arguments" he raised were alternative contentions in support of his position on the first issue. They were not alternative bases on which he sought to defend the assessment, but rather variations on the same legal argument concerning the existence of an assessable net capital gain. I understand the "four arguments" to be the four disposals canvassed in my earlier reasons: Orica Ltd v Commissioner of Taxation [2010] FCA 197 (Orica Ltd) at [87]‑[136]. 6 In reliance on the observations of Goldberg J in Dr Martens Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [54] the Commissioner submits that the Court should not disallow costs to a party simply because the party has failed upon an issue, unless it be quite a separate and distinct issue from the issues in respect of which it succeeded. For the reasons summarised at [5], he says that he has not failed on such separate and distinct issues. Rather it is a case where a number of different arguments were raised by way of legal analysis rather than factual analysis, and he "reasonably canvassed" those arguments: Emirates v Australian Competition and Consumer Commission (No 2) [2009] FCA 492 at [11]. 7 The Commissioner says that if any reduction is to be made in an order for costs in his favour, it should be made on the basis that Orica succeeded in showing that the assessment was excessive in the amount of $14.2 million, that being the difference between the assessed net capital gain of $264,540,764 and the net capital gain of $250,340,764 found by the Court, which is approximately 5.4% of the assessed net capital gain. 8 In an appropriate case the Court can apply an issue by issue approach to a costs award rather than what has been called the ordinary rule, where the winner takes all. In Bowen Investments at [5] Finkelstein and Gordon JJ, with whom on this point Rares J agreed, said: Costs are in the court's discretion. Fairness should dictate how that discretion is to be exercised. So, if an issue by issue approach will produce a result that is fairer than the traditional rule, it should be applied. It is not suggested that such an approach requires a precise arithmetical apportionment of the costs as between the winner and loser of discrete issues. No doubt the assessment will often be rough and ready. But it will have the virtues of both fairness and reasonableness, which are often lacking in the application of the traditional rule. 9 The Commissioner was successful on the two ultimate issues: Orica was liable to tax on a capital gain, and it was found that it had not adopted a reasonably arguable position in lodging a return that did not include that capital gain. 10 The Commissioner also succeeded on the following important issues: (a) that he had assessed the wrong taxpayer: Orica Ltd at [59]‑[82]; (b) that there was no novation of the Distribution Agreement: Orica Ltd at [118]‑[128]; and (c) that the consideration in respect of the fourth disposal was nil: Orica Ltd at [194]‑[220]. Issue (c) consumed a great deal of time, both in cross‑examination of the two experts, Mr Selak and Mr Samuel, and in the assessment of their evidence. 11 Orica was successful on two issues. The first was in rebutting the Commissioner's alleged first, second and third disposals. The second issue was in establishing that the Commissioner's assessment was excessive. 12 At one level the fourth disposal contended for by the Commissioner, which was upheld, was a non‑issue. This was because Orica accepted that the Assignment Deed itself effected the disposal of the Distribution Asset. However in order to get home on this issue, Orica had to succeed in both its no novation and nil consideration arguments. It failed to do so. 13 In my view Orica's success in rebutting the Commissioner's first, second and third disposals does not entitle it to a departure from the general rule as to costs. They were not separate and distinct issues, but different legal arguments based on the one set of very complicated facts. Bowen Investments is distinguishable. There the appellant pleaded seven distinct causes of action, and succeeded on one alone. The present case is more like Emirates [2009] FCA 492, where Middleton J said that the number of different arguments that had been advanced were "more by way of legal analysis than factual analysis", and were "reasonably canvassed by the respondents". 14 I am not persuaded of the relevance of the fact that disposals one to three were introduced by amendment more than three years after the proceeding began. The Commissioner had to pay the price of obtaining leave to amend his SFIC. Once leave was granted, the new contentions were to be treated in the same way as the original contention, unless of course they were frivolous or not worthy of serious consideration. That has not been suggested here. Orica does not submit that the alternative arguments were improperly or unreasonably raised. As is apparent from my earlier reasons, they required serious consideration before they could be rejected. 15 In all the circumstances, I am prepared to give Orica some relief from the application of the ordinary rule on the basis only that it succeeded in establishing, by resort to Mr Samuel's evidence, which it so trenchantly criticised, that the Commissioner's assessment was excessive: see Orica Ltd at [221]. There is an arithmetical attraction in the Commissioner's suggestion of a 5.4% discount. However, a sound judicial exercise of discretion, regard being had to all the circumstances of the case, is preferable to technical nicety. I will order that the Commissioner have 90% of his costs. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg.