Precise Training Pty Ltd v Chief Commissioner of State Revenue

Supreme Court of NSW|2020-08-28|Before: Williams J

Introduction

This is an application by the defendant (Chief Commissioner of State Revenue) for the first to fifth plaintiffs to provide security for its costs of the proceeding. As will become clear, the sixth plaintiff (Superior Family Investments Pty Ltd) is joined (and, at least notionally, remains) as a party but is no longer an active participant in the proceeding.
By their Amended Consolidated Summons filed on 21 August 2019, the plaintiffs seek a review, under s 97 of the Taxation Administration Act 1996 (NSW) (TA Act) and by way of judicial review, of several determinations made by the defendant between 2015 and 2019 which disallowed objections made by the plaintiffs to their assessment for payroll tax under the Payroll Tax Act 2007 (NSW) (PT Act) between the 2010-2011 and 2016-2017 financial years.
This proceeding (which consolidates two previously separate proceedings) raises a number of issues under the PT Act in relation to the assessments made by the defendant. These issues are identified in the parties' respective Consolidated Appeal Statements, and include: 1. whether the plaintiffs paid any wages that were taxable in New South Wales pursuant to ss 10 and 11 of the PT Act; 2. whether any or all of the plaintiffs can be grouped with other third party entities for the purposes of Part 5 of the PT Act; 3. whether any of the plaintiffs, if held to be a grouped entity under issue (3) above, should be excluded from those groups under s 79 of the PT Act; 4. if any of the plaintiffs are found to be liable for payroll tax, whether there should be remission of any amount of penalty tax imposed under Division 2 of Part 5 of the PT Act or of any amount of interest which has accrued on an assessment, and, if so, by what amount; and 5. to the extent that the Court determines that any or all of the plaintiffs are liable for payroll tax (including payment of applicable penalties and interest), whether the defendant: 1. issued the assessments such as to give rise to double taxation; 2. had unlawfully imposed payroll tax, in light of the fact that some of the grouped entities upon which the payroll tax had been calculated had conducted business outside of New South Wales or had not conducted business at all; 3. had unlawfully imposed payroll tax without giving reasons for the imposition.

Background and procedural history

Given the issues raised by the submissions in relation to delay, it is necessary to set out the background to the dispute and some of the procedural history of the proceedings and the notice of motion.
On 5 August 2015, the defendant issued payroll tax assessments to the first plaintiff for the 2011 to 2015 financial years. According to the plaintiffs' solicitor, these assessments were issued by the defendant without written reasons explaining the basis for the assessment. The defendant's solicitor deposes in her affidavit of 22 May 2020 that the assessments were issued on the basis that the first plaintiff was a member of a group as defined by Part 5 of the PT Act.
The first plaintiff lodged objections to these assessments on 10 December 2015 and 18 July 2016, which were disallowed by the defendant on 16 May and 29 November 2016.
On 6 August 2018, the defendant issued payroll tax assessments in respect of the sixth plaintiff for the years ending 30 June 2011 to 31 August 2016. Objections were lodged by the sixth plaintiff to these assessments on 5 October 2018 which were disallowed by the defendant on 26 February 2019.
On 29 August 2018, the first plaintiff filed a Summons commencing proceeding 2018/265201 seeking a review of the objection determinations dated 16 May and 29 November 2016 under s 97 of the TA Act.
On 1 November 2018, the first plaintiff filed its Appeal Statement. The defendant filed his Appeal Statement on 21 December 2018.
On 3 December 2018, the defendant issued payroll tax assessments and notices of joint and several liability on the second plaintiff for the period 1 July 2010 to 30 June 2017, the third plaintiff for the period 1 July 2010 to 30 June 2017, the fourth plaintiff for the period 1 July 2012 to 30 June 2017 and the fifth plaintiff for the period 1 July 2015 to 30 June 2017. According to the plaintiffs' solicitor, these assessments were issued without written reasons explaining the basis for the assessment.
On 18 December 2018, the second to fifth defendants objected to these notices of assessments and notices of joint liability issued by the defendant.
On 15 February 2019, a subpoena for the production of documents was issued to the defendant at the request of the first plaintiff in proceeding 2018/265201. The defendant's solicitor deposes that approximately 3,000 documents were reviewed by her and the defendant, with the defendant producing 1,209 documents to the Court.
On 29 March 2019, the first plaintiff served its evidence in proceeding 2018/265201, which included two affidavits and accompanying exhibits and annexures, comprising over 800 pages in total.
On 24 April 2019, a subpoena for the production of documents was issued at the request of the defendant to certain third parties and related entities of the first plaintiff. A notice to produce was also served on the first plaintiff by the defendant.
On 29 April 2019, the second to sixth plaintiffs filed a Summons commencing proceeding 2019/131889 seeking a review of the notices of assessment and notices of joint liability issued by the defendant. The Summons sought both judicial review and a review under s 97 of the TA Act of the disallowance of the objections lodged by the second to sixth plaintiffs to the notices of assessment issued by the defendant. At this point, however, the defendant had not determined any of the objections lodged by the second to sixth plaintiffs on 18 December 2018.
On 22 May 2019, the Court made orders by consent consolidating proceeding 2018/265201 and proceeding 2019/131889, and that the new consolidated proceeding bear the case number 2019/131889. Directions were also made for the filing and service of a consolidated Amended Summons by 24 June 2019 and for the filing and service of a consolidated Appeal Statement by the plaintiffs (and the sixth plaintiff) on 8 July 2019 and by the defendant on 22 July 2019.
The plaintiffs were slightly late in filing their Consolidated Appeal Statement on 25 June 2019. The defendant however did not file their Consolidated Appeal Statement by 22 July 2019. The reason for this is stated by the defendant's solicitor in a letter sent to the plaintiffs' solicitor on 29 July 2019. The letter raised concerns about the competence of the proceeding in light of the fact that there had been no determination by the defendant of the objections purportedly made by the second to fifth plaintiffs to the notices of assessment and notices of joint liability on 18 December 2018. The defendant offered to treat these objections as validly made by those plaintiffs and to formally determine those objections on or by 6 August 2019. The defendant invited the plaintiffs to amend their Consolidated Amended Summons to address these issues and proposed that an extension be granted to the defendant in order for it to file and serve its Consolidated Appeal Statement. The defendant also requested copies of the trust deeds for certain trusts of which the second plaintiff and sixth plaintiff were trustees.
The plaintiffs did not respond to this letter or to a follow up letter that was sent on 12 August 2019.
On 5 September 2019, the plaintiffs filed and served an Amended Consolidated Appeal Statement.
On 18 September 2019, the defendant filed and served its Consolidated Appeal Statement. It is a comprehensive document, comprising 32 pages in which the defendant sets out in detail the basis of its assessment of the plaintiffs for payroll tax, and a further 92 pages of annexures which sets out the grouping of corporate entities that were relied upon by the defendant in assessing each of the plaintiffs for payroll tax.
On 30 September 2019, the Court directed the plaintiffs to serve their lay evidence by 13 December 2019. The proceeding was listed for directions on 17 December 2019.
On 10 October 2019, the defendant withdrew its assessment for payroll tax in respect of the sixth plaintiff.
On 3 December 2019, the defendant's solicitor sent a letter by email to the plaintiffs' solicitor in which she expressed concern as to whether some of the plaintiffs could meet any adverse costs order should they be unsuccessful in the proceeding. It was stated that recent ASIC and title searches in relation to the first and fifth plaintiffs showed that those parties did not own or have any identifiable interest in real property, and have issued capital of only $2.00 and $100.00 respectively. The letter continued, stating that the defendant was considering making an application for security for costs. In order to allay those concerns, the defendant's solicitor requested that by 18 December 2019 the plaintiffs provide copies of financial reports and statements, tax returns and any notices of assessment, business activity statements, ledgers for accounts payable and accounts receivable, and bank statements.
On 13 December 2019, the plaintiffs served the remainder of their lay evidence in chief, comprising three affidavits. The affidavits and the accompanying exhibits to those affidavits (which were served on 18 December 2019) amounted to approximately 1,200 pages.
On 17 December 2019, the Court made directions by consent that the plaintiffs serve any further lay evidence in chief by 20 December 2019, that the defendant serve any lay evidence by 19 March 2020, and that the plaintiffs serve any lay evidence in reply by 16 April 2020. The proceedings were listed for further directions on 23 April 2020.
The plaintiffs did not respond to the defendant's letter of 3 December 2019 by 18 December 2019 as requested. A follow up email attaching the same letter was sent to the plaintiffs on 13 January 2020 requesting a response to that letter by 20 January 2020.
On 21 January 2020, a paralegal at the plaintiffs' solicitor's office responded to the defendant's solicitor's follow up letter of 13 January 2020, stating that a formal response to that letter would be provided by the end of that week.
On 28 January 2020, the defendant served notices to produce (issued by the Court) on the plaintiffs. The defendant's solicitor deposes that attendance was required in the Return of Subpoena List on three separate unspecified occasions. On each of those occasions, the defendant's solicitor deposes that the plaintiffs did not produce any documents pursuant to the notices to produce.
Also on 28 January 2020, twenty-one subpoenas for production of documents were issued by the Court at the defendant's request and served on various entities that were allegedly grouped with one or more of the plaintiffs. The defendant's solicitor deposes that attendance was required at the Return of Subpoena List on five unspecified occasions for a number of those subpoenas, and that responses to two of those subpoenas remain outstanding. The plaintiffs' solicitor deposes that the only 18 of these subpoenas were ever served on the plaintiffs.
On 3 February 2020, the plaintiffs' solicitor responded to the defendant's solicitor's letters dated 3 December 2019 and 13 January 2020. The letter stated: "We advise that [the first plaintiff] currently trades. Further, [the first plaintiff] recently paid to your client, pursuant to a Heads of Agreement, the sum of $655,591.20. Nevertheless, we provide to you the Estimate of Tax Payable or Refundable of [the first plaintiff], for the year ending 30 June 2019. You will note that based on the said financials, [the first plaintiff] is financially sound and profitable. [The fifth plaintiff] ceased trading approximately 12 months ago. All other companies are trustees of a trust and have no income of their own. If your client attempts to make any application for security of costs, we have instructions to defend such application and will seek costs on an indemnity basis to be paid forthwith."
Attached to that letter were the financial and tax documents requested by the defendant with respect to the first plaintiff only.
On 10 February 2020, the defendant's solicitor responded to the plaintiffs' letter sent on 3 February 2020: "That [the first plaintiff] previously paid my client $655,591.20 does not mean it would be in any position to meet an adverse costs order which could be made against it either this year or next year. Furthermore, the Estimate of Tax Payable or Refundable indicates that the liabilities of [the first plaintiff] exceed its assets by approximately $35,000.00. My client's concern about your client's inability to meet a costs order are heightened by your assertion that [the fifth plaintiff] no longer trades. Indeed, this suggests that [the fifth plaintiff] would not be able to meet an adverse costs order made against it. My client will provide 7 days from the date of this email for you to provide any further financial information. Failing that, my client will be filing an application for security for his costs."
The plaintiffs did not respond to this letter.
On 23 April 2020, the Court noted that the sixth plaintiff withdrew its application for review in the proceedings. The Court made orders by consent directing the defendant to serve its bundle of documents it proposed to tender by 30 April 2020 and an order extending the time for the first to fifth plaintiffs to serve any lay evidence in reply to 28 May 2020. The proceeding was listed for further directions on 4 June 2020.
The defendant served its proposed tender bundle on 30 April 2020. The tender bundle comprised 12 lever arch folders in which contained over 4400 pages of material.
On 22 May 2020, the defendant filed the present notice of motion seeking security for costs.
The first to fifth plaintiffs and the defendant have filed and served all of the evidence in chief upon which they wish to rely at the final hearing, which is expected to take place at some time in 2021. No hearing dates have been allocated at this stage. The plaintiffs' evidence in chief consists of four affidavits, including exhibited material. The defendant's evidence in chief consists of five lay witness affidavits and the proposed tender bundle.

Security for costs

As noted above, the defendant's notice of motion sought an order for security for costs pursuant to UCPR, r 42.21, Corporations Act, s 1335, and/or in the exercise of the inherent jurisdiction of the Court.
UCPR r 42.21 relevantly provides: "(1) If, in any proceedings, it appears to the court on the application of a defendant-- … (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so…"
Section 1335 of the Corporations Act provides: "(1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."
Irrespective of whether the Court acts pursuant to UCPR r 42.21(1)(d) or Corporations Act s 1335, or in the exercise of its inherent jurisdiction, the principles upon which the Court awards security for costs in circumstances where it appears that a corporate plaintiff would be unable to satisfy an adverse costs order are relevantly the same and are well known. Those principles are routinely described as involving two steps.
The first step has been described as a threshold or jurisdictional question. It requires the defendant to prove that there is a "reason to believe" that the corporate plaintiff will be unable to pay the costs of the defendant if successful in his, her or its defence. The defendant must be able to demonstrate a rational basis for this belief. The words "reason to believe" acknowledge that, as a matter of practical reality, the assessment of the plaintiff's financial position will be based on limited materials in the context of a security for costs application. The "reason to believe" test has often been described as an undemanding one. However, it is not sufficient for the defendant to merely demonstrate a risk that the plaintiff may be unable to pay costs: Cornelius v Global Medical Solutions Australia Pty Ltd (2014) 98 ACSR 301; [2014] NSWCA 65 at [15]-[17] (Macfarlan JA), [59] (Ward JA), [60] (Tobias AJA).
The threshold question is satisfied in this case by the plaintiffs' acceptance, for the purposes of the notice of motion, that there is reason to believe that the plaintiffs will be unable to pay the defendant's costs if ordered to do so.
The remaining question is whether the Court should, as a matter of discretion, make an order that the plaintiffs pay security for the defendant's costs of these proceedings.
The discretion is to be exercised having regard to the underlying purpose of the jurisdiction to award security for costs, namely the protection of the efficacy of the exercise of the jurisdiction to award costs. As the Full Court of the Federal Court said in Commissioner of Taxation v Vasiliades (2016) 344 ALR 558; [2016] FCAFC 170 at [86] (Kenny and Edelman JJ): "… the purpose of an order for security is to ensure that there is a fund available for the benefit of a successful respondent, to mitigate the injustice that would arise if a successful respondent, who has not chosen to insure the expense of litigation, cannot recover costs from the party who chose to bring the proceedings in the first place. The policy of the law in this regard is related to the accepted understanding in Australian courts that normally costs follow the event."
There is an evidentiary onus on the part of the plaintiffs to establish a reason why, in all the circumstances of the case and having regard to that underlying purpose, security should not be granted: Cornelius v Global Medical Solutions Australia Pty Ltd (2014) 98 ACSR 301; [2014] NSWCA 65 at [18]-[20] (Macfarlan JA, Ward JA and Tobias AJA agreeing); Modakboard Australia Pty Ltd v Matthew Howard Brady [2018] NSWSC 399 at [246]-[249].
As I have already noted above, the plaintiffs submitted that the Court should not exercise its discretion to order security for two reasons, namely: 1. the proceedings are defensive in nature; and 2. there was a significant delay by the defendant in making the application for security, and the defendant has not adequately explained that delay.

Defensive nature of the proceedings

Pursuant to s 119 of the TA Act, the production of a notice of assessment is conclusive evidence of: 1. the making of the assessment; and 2. the correctness of the amount and all particulars of the assessment (except in objection or review proceedings, when the notice of assessment is prima facie evidence of the correctness of the amount and particulars).
Pursuant to s 44 of the TA Act, the whole of the tax assessed by the defendant as payable by the plaintiffs, pursuant to the notices of assessment that are the subject of these proceedings, is a debt payable by the plaintiffs to the defendant, unless and until those assessments are revoked (or alternative assessments are made) by the Court in these proceedings.
Subject to one qualification, the plaintiffs were compelled to commence these proceedings in order to challenge the debt that is otherwise owed by reason of the statutory payroll tax assessment process and the operation of ss 119 and 44 of the TA Act.
The qualification, to which I will return below, is that the plaintiffs could have commenced the proceedings in the New South Wales Civil and Administrative Tribunal pursuant to s 96 of the TA Act rather than commencing the proceedings in this Court under s 97 of the TA Act.
The defendant submitted that the proceedings should nevertheless not be characterised as defensive because: 1. the issues that can be raised on the application for review under ss 97-103A of the TA Act are not limited to the grounds of objection raised by the taxpayer under ss 86-95 of the TA Act, and the plaintiffs have the onus of proving their case on review; 2. the Commissioner is entitled to recover the amounts assessed as a debt in accordance with ss 44 and 103(1) of the TA Act, even though these proceedings are on foot; and 3. the plaintiffs' need to commence these proceedings arose from their own conduct in failing to provide information and documents to the defendant for the purpose of his assessments.
I accept that the plaintiffs are entitled in these proceedings to raise issues that extend beyond the grounds of their objections: TA Act, s 100(2). I also accept that the plaintiffs bear the onus of proving their case: TA Act, s 100(3). In one sense, the proceedings are an attack on the assessments that the defendant has undertaken in the discharge of his statutory function. At the same time, however, the proceedings are responsive to, and defensive against, the tax debt that arises from those assessments by operation of ss 44 and 119 of the TA Act, unless and until they are revoked by the Court. In my opinion, it is relevant to the characterisation of the proceedings that they are responding to the exercise of a statutory function that the defendant was obliged to discharge, rather than to some self-help measure that a private person or entity has chosen to avail themselves of.
I acknowledge that the defendant is entitled to recover the amounts assessed as a debt, notwithstanding that these proceedings are pending: TA Act, s 103(1). I do not understand the basis of the defendant's submission that this warrants the conclusion that the proceedings do not have a defensive character. In my view, this is a matter that contributes to the proceedings having some defensive element. I also note that the plaintiffs could seek to defend themselves from any enforcement action prior to the determination of these proceedings by applying for a stay of the assessment decisions under s 103(2) of the TA Act. Even if no such stay were sought and the defendant recovered the debt, the plaintiffs could rely on s 104 of the TA Act in order to require the defendant to repay the amount recovered, if and to the extent that the plaintiffs are ultimately successful in these proceedings. In any event, senior counsel for the defendant informed the Court at the hearing of the notice of motion that the defendant's policy is not to take enforcement action whilst proceedings for review under s 97 of the TA Act are pending, and that no such enforcement action had been taken in this case.
The plaintiffs dispute the defendant's contention that their own conduct in failing to provide information to the defendant is the source of their complaints about the assessments. The plaintiffs submitted that the grounds of review raised in the proceedings are not limited to matters that turn on documents that were not available to the defendant at the time of the assessments. Senior counsel for the defendant did not respond to this submission, or endeavour to demonstrate the correctness of the defendant's contention by reference to the whole of the lengthy Consolidated Appeal Statements that have been filed. In those circumstances, I do not consider that it is appropriate or necessary to examine the contention further. As will become apparent, any such examination would not be determinative of the outcome of the notice of motion in any event.
I respectfully agree with Nicholas J in Oswal v Commissioner of Taxation (No 2) [2015] FCA 1143 at [53]-[54] that the Court is not required to take a binary view of whether a party is, in substance, a plaintiff or defendant, or whether proceedings are an attack or are defensive in nature. In this case, it is my opinion that the operation of ss 44 and 119 of the TA Act means that the proceedings are properly characterised as having a defensive element, but it would be inaccurate in my opinion to treat the plaintiffs as being, in substance, in the position of a defendant for the purpose of determining the security for costs application. The plaintiffs are seeking to defend themselves against the tax debt by attacking the manner in which the defendant has discharged his statutory functions and the outcome of the assessments. As the plaintiffs acknowledged, the defensive element of the proceedings is relevant to, but not determinative of, the exercise of the discretion whether to make an order for security for costs: Oswal (supra) at [52]-[53].
I mention for completeness the defendant's submission that the plaintiffs could have commenced the review application in the Tribunal under s 96 of the TA Act rather than commencing the proceedings in this Court under s 97 of the TA Act. The defendant submitted that, if the plaintiffs had taken this course they would have avoided any issue concerning security for costs because parties to proceedings in the Tribunal bear their own costs unless there are special circumstances.
As I understood it, the defendant's point was that the plaintiffs had an option of taking steps to protect themselves against the assessments in a jurisdiction in which they would not be exposed to an adverse costs order if unsuccessful. Thus, the plaintiffs were not compelled to expose themselves to an adverse costs order, and security for costs, by commencing proceedings in this Court. Even if these proceedings are characterised as defensive in nature, this should not be treated as a significant factor in the exercise of the discretion, having regard to the plaintiffs' decision not to prosecute the proceedings in the Tribunal's no-costs jurisdiction. .
However, senior counsel for the defendant accepted that this was essentially a "neutral" factor. I agree. I accept the plaintiffs' submission that the fact that they have chosen to invoke this Court's jurisdiction and expertise in a matter where the amount of the disputed assessments is in the order of $29 million (including penalties and interest) should not count against them in the weighing up of all of the circumstances relevant to the exercise of the discretion concerning security for costs.

Delay

The defendant conceded that there had been some delay in bringing the security for costs application. The concession was limited to the period from 25 June 2019, when the plaintiffs filed their Consolidated Appeal Statement, to 3 December 2019, when the defendant's solicitor wrote to the plaintiffs' solicitor raising concerns about the plaintiffs' ability to meet any adverse costs order in the proceedings, requesting information and foreshadowing a potential security for costs application.
I accept that the defendant's failure to apply for security for costs prior to 25 June 2019 is attributable to the fact that - prior to the commencement of the 2019 proceeding, the consolidation of the 2018 and 2019 proceedings and the filing of the plaintiffs' Consolidated Appeal Statement on 25 June 2019 - the scale and complexity of the issues to be raised in the proceedings, and the amount of potential costs order in the defendant's favour, was likely thought to have been materially less. Indeed, the plaintiffs did not submit that the application for security for costs ought to have been made prior to the consolidation of the proceedings.
In my opinion, the defendant's delay from 25 June 2019 continued beyond the letter of 3 December 2019 until the notice of motion was filed on 22 May 2020. It was sensible for the defendant to write to the plaintiffs in the terms that it did on 3 December 2019, but it should have been clear to the defendant by at least the end of January 2020 that the letter was not likely to elicit the detailed response from the plaintiffs that the defendant hoped for. Having already delayed writing the letter since 25 June 2019, the defendant should have moved promptly after 3 December 2019 to file its motion for security for costs.
The plaintiffs submitted, and the defendant acknowledged, that an application for security for costs should be made promptly and that delay is a factor relevant to the exercise of the discretion. However, the defendant relied on the following passage from the judgment of the Court of Appeal in PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48 at [11]: "The relative significance of delay in the making of a security for costs application and as a factor in the exercise of judicial discretion to award security for costs will inevitably vary with the facts of each case, the nature, extent and cause for any delay and the overall justice of the case. Insofar as his Honour suggested that some authorities established that delay could "possibly even [be] irrelevant, unless it can be seen to have generated or produced some consequence of significance", we would not agree. In our opinion, delay will invariably be a relevant discretionary factor in any application for security for costs, but the degree or extent of its relevance will vary according to the circumstances of any given case along a spectrum from the slight to the extreme."
The plaintiffs submitted that the rationale for requiring a security for costs application to be made reasonably promptly is a matter of fairness, so as to minimise the risk of a plaintiff incurring legal costs and expenses in relation to proceedings that they may not be able to pursue if they are unable to pay any security for costs awarded to the defendant. I accept this submission.
In this case, the only consequence of the delay identified by the plaintiffs was that they had incurred legal costs in the proceedings between the consolidation of the proceedings and the filing of the defendant's notice of motion for security for costs on 22 May 2020. As will be apparent from the chronological account of the background matters at the outset of these reasons, those costs were incurred in the preparation of the plaintiffs' Consolidated Appeal Statement and evidence.
However, the evidence did not establish that the plaintiffs would not have incurred those costs if the defendants' application for security for costs had been made earlier.
In his affidavit sworn on 23 July 2020, Mr David deposed: "As a result of the Defendant's delay in bringing its security for costs application, as at 23 July 2020, the Plaintiffs have already incurred approximately $102,650.00 in legal fees, comprising $40,000.00 in solicitors' fees and $62,650.00 in counsel's fees. If security were to be ordered, it would be mean that the Plaintiffs would have incurred costs in relation to proceedings which they would not be able to pursue further."
As the defendant submitted, there was no evidence to support the bare assertion in the last sentence of that paragraph that the plaintiffs will be unable to pursue these proceedings further if they are ordered to pay security for costs in the sum of $557,700 sought by the defendant (or a lesser sum, if the plaintiffs' submissions in relation to quantum are accepted).
The submission made by counsel for the plaintiffs was in the following very careful terms: if the plaintiffs are ordered to pay security for costs and if (hypothetically) the plaintiffs were unable to pay, then the plaintiffs would not be able to pursue the proceedings.
I drew counsel's attention to the evidence of Mr David extracted above, and counsel confirmed that he did not put the submission any higher than I have referred to immediately above.
In circumstances where counsel eschewed any submission that the plaintiffs would be unable to pursue the proceedings if they were ordered to pay security for costs, I do not infer from the plaintiffs' concession that there is reason to believe that they would be unable to meet any adverse costs order that the proceedings would be stultified if they were ordered to pay security for costs. On the contrary, given that the assessments challenged by the plaintiffs involve a total amount of approximately $29 million, I infer that it is more likely that the plaintiffs would find a source of funds to meet an order for security rather than abandon the proceedings and accept the consequences of the defendant's enforcement of the assessments as a debt pursuant to ss 44 and 119 of the TA Act. I give no weight to Mr David's assertion referred to above that the proceedings would be stultified, given that the plaintiffs' counsel did not rely on this evidence in submissions.
For those reasons, whilst the defendant's delay in making the application for security for costs was relatively significant in duration (approximately one year), the evidence does not establish that the plaintiffs incurred costs during that period that they would not have incurred if they had been aware of the defendant's application earlier. The making of an order for security at a relatively late stage in the proceedings as a result of the defendant's delay would therefore not cause unfairness or prejudice to the plaintiffs. The defendant's delay is therefore not a significant factor in the exercise of the discretion in all the circumstances of this case.

Determination: Plaintiffs should pay security for defendant's future costs

As I have referred to in [54] above, the purpose of the jurisdiction to make an order for security for costs is to protect the efficacy of the exercise of the jurisdiction to award costs at the conclusion of the proceedings, bearing in mind that costs usually follow the event. In this case, the plaintiffs concede that there is reason to believe that, if the defendant successfully defends the proceedings and an order for costs is made in his favour, the plaintiffs will be unable to pay those costs. Whilst the proceedings can fairly be characterised as having a defensive element, it is also fair to say that the plaintiffs are choosing to mount an attack on the assessment undertaken by the defendant in the exercise of his statutory functions, and the legislative regime entitles them to do so relying not only on grounds raised previously during the objection process, but also fresh grounds. In circumstances where an order for security for costs would not prevent the plaintiffs from pursuing the proceedings further, I do not consider that the overall justice of the case favours the Court doing nothing to prevent its jurisdiction to award costs from being frustrated in the event that the plaintiffs are ultimately unsuccessful in the proceedings.
However, the defendant delayed making the application for security for almost one year (from 25 June 2019 to 22 May 2020), and that delay has not been adequately explained. During that period of delay, the defendant spent approximately $463,000 in costs, for which it now seeks security in the amount of $347,400.
As a matter of fairness, the plaintiffs were entitled to know promptly that security would be sought, and the amount of the security that would be sought, as the price for the proceedings being permitted to continue in circumstances where there was reason to believe that the plaintiffs would be unable to meet any adverse costs order at the conclusion of the proceedings.
Whilst no submission has been made that an order for security would stultify the proceedings, the plaintiffs' task of raising security for costs is self-evidently more onerous if they are required to provide security for the significant amount of past costs that the defendant has incurred without having applied for security, in addition to the defendant's future costs.
In these circumstances, the appropriate exercise of the discretion, in my opinion, is to limit the order for security for costs to the defendant's costs incurred after 22 May 2020. The hurdle that the plaintiffs must clear in order to avoid the proceedings being stayed or dismissed for failure to provide security for costs should not, at this stage of the proceedings, be set so high as to include past costs that the defendant chose to incur before applying for security. As the plaintiffs submitted, the courts are typically reluctant to make an order for security for past costs where there has been significant and unexplained delay in making the application for security: see, for example, Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 at [69]; Chocron v Onkoud [2018] NSWSC 1205 at [10].
It remains to consider the quantum of security for the defendant's future costs that the plaintiffs should be ordered to pay.
In both of her affidavits, the defendant's solicitor gave evidence of the estimated costs likely to be incurred by the defendant after 22 May 2020. The defendant's solicitor deposes that her estimates of future costs are based on her "experience in working on large revenue matters and enquiries I have made of my colleagues with experience in working on large payroll tax grouping matters in the Supreme Court". The defendant's solicitor deposes that she has been employed as a solicitor in the Commercial Law practice group in the defendant's solicitor's firm since April 2018. She deposes that during this time she has had carriage of a number of large revenue litigation matters on behalf of the defendant in this proceeding in this Court.
In her affidavits sworn on 22 May 2020 and 6 August 2020, the defendant's solicitor estimated that the defendant's future costs and disbursements of the proceedings would be approximately of $252,000, on the basis that the duration of the hearing would be approximately nine days with associated preparation of that hearing, including reviewing the plaintiffs' reply evidence, conferring with witnesses, preparation of the court book and submissions as well as other matters incidental to the preparation for hearing.
The figure of $252,000 comprises: 1. $117,000 for solicitor's fees (based on hourly rates of $331.20 for principal solicitors and senior solicitors, $276.00 for solicitors and $130.20 for paralegals); 2. $113,000 for counsel's fees (based on daily rates of $4,880 for senior counsel and $2,000 for junior counsel); and 3. $22,000 for disbursements (no details of the disbursements were provided).
The defendant sought security in the amount of $210,300 in respect of those estimated future costs, on the basis the defendant was likely to recover on assessment at least 70% of solicitors' fees, at least 70% of disbursements and 100% of counsel's fees.
The plaintiffs did not dispute the nine day estimate for the hearing time or the need for preparation for hearing of the kind described above.
Nor the did the plaintiffs take issue with the hourly or daily rates for solicitors and counsel, or the defendant's assessment of the likely proportion of solicitors' fees, counsel's fees or disbursements likely to be recovered on assessment.
The plaintiffs accepted that any order for security for the defendant's future costs should include $113,000 for counsel's fees, on the basis that this allowed for seven days' preparation and appearances at the nine day hearing for each counsel.
However, the plaintiffs submitted that the estimate for solicitors' fees was excessive, as it allowed for 353 hours of work (or approximately 35 days of work at 10 hours per day) by a principal solicitor. The plaintiffs submitted that the allowance for estimated solicitors' fees should be reduced from $117,000 to $81,900 (before being reduced further to allow for the likely 70% recovery on assessment).
I reject that submission. In my opinion, it is unrealistic to assume that all of the work on a matter of this complexity would be undertaken by one solicitor, even at the most senior level. The defendant's estimate of $117,000 is equivalent to a team of two solicitors (at principal solicitor or senior solicitor level) and one paralegal working for approximately 14 days at 10 hours per day, or a team of one principal or senior solicitor, one solicitor and one paralegal working for approximately 16 days at 10 hours per day. That allows for a team that is commensurate with the complexity of the matter between five and seven days' preparation time for a nine day hearing, and allows for work being done by some team members outside of court during the hearing to support the instructing solicitor attending court. In my opinion, this is reasonable, having regard to the volume of affidavit and documentary evidence to which I have referred earlier in these reasons, and the nine witnesses expected to be called and cross-examined at the hearing, as referred to in paragraph 11 of Ms Hurley's affidavit of 6 August 2020.
The plaintiffs also submitted that the estimated disbursements of $22,000 were excessive. As I have referred to above, no details were provided in Ms Hurley's affidavits about how the amount of $22,000 was estimated. I accept that the defendants will necessarily incur some disbursements (photocopying etc). However, in the absence of any evidence of what those disbursements will amount to, I accept the plaintiffs' submission that a lesser allowance of $5,000 should be made.
I am therefore satisfied that the appropriate exercise of the discretion is to order the plaintiffs to pay security for the defendant's costs of the proceedings incurred in the period after 22 May 2020 in the sum sought by the defendant in respect of solicitors' and counsel's fees but reducing the disbursements to $5,000. The resulting amount is $199,900, comprising: 1. $81,900 for solicitors' fees (being 70% of the estimated fees of $117,000); plus 2. $113,000 for counsels' fees (being 100% of the estimated fees); plus 3. $5,000 for disbursements.
No submissions were made by the plaintiffs concerning the timing of the payment of security for costs, or payment in tranches. However, given that the proceedings have not yet been listed for hearing, the parties do not expect it to be listed for hearing prior to about April 2021, and most of the future costs described in Ms Hurley's affidavit are unlikely to be incurred until the months or weeks prior to the hearing, I consider that it is appropriate to allow the plaintiffs some time to pay the whole of the security. I will therefore order that the security be paid in two tranches, with a first tranche of 50% to be paid within 28 days of the date of this judgment and the second tranche of 50% to be paid by 1 February 2021.
No party made any submission about the form in which the security should be provided. I assume that it is therefore to be provided by payment into court. If the parties agree on an alternative form of security, they may exercise liberty to apply for the orders to be varied to accommodate that alternative form of security.
As to the costs of the notice of motion, the plaintiffs' opposition to any order for security for costs was unsuccessful. In my opinion, there is no reason why costs should not follow the event, and the appropriate order is that the plaintiffs should pay the defendant's costs of the notice of motion.

Conclusion and orders

For all of the reasons above, I make the following orders: 1. Order the first to fifth plaintiffs to provide security for the defendant's costs in the amount of $199,900 in the following tranches: 1. the first tranche of $99,950 within 28 days after the date of this order; and 2. the second tranche of $99,950 on or before 1 February 2021, with such security to be provided by payment into court. 1. Order that the proceedings be stayed if security is not provided in accordance with Order 1 above. 2. Order that the first to fifth plaintiffs pay the defendant's costs of the notice of motion filed on 22 May 2020 in an amount agreed or assessed. 3. Grant liberty to the parties to apply to vary the form in which the security required by Order 1 above is to be provided, in the event that the parties reach agreement that security may be provided in a form other than payment into court. The liberty to apply may be exercised by email to the Associate to Williams J in the first instance.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 September 2020

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