HIS HONOUR: In this matter, Qantas sought a review of a decision of the Chief Commissioner in which the Chief Commissioner refused Qantas' request for a refund of payroll tax for the financial years ended 30 June 2006 to 30 June 2010. The amount of the refund sought by Qantas and which was at issue was $6,260,527.
Qantas was partially successful. I found that it was entitled to a refund of $2.3 million, in addition to a refund allowed by the Chief Commissioner by his letter of 29 July 2011.
The precise amount of the refund which I have ordered the defendant pay the plaintiff was $2,291,542 plus interest pursuant to s 105 of the Taxation Administration Act 1996 (NSW).
In reaching my conclusion that Qantas was entitled to that amount of refund, I dealt with four issues that the parties raised. The first issue was raised belatedly by the Chief Commissioner, and was whether or not I should refuse to follow the decision of Gzell J in CSR Ltd v Chief Commissioner of State Revenue [2006] NSWSC 1380; (2006) 68 NSWLR 440, that the exemptions claimed could be available notwithstanding that the defined benefit scheme was not in deficit as at 1 July 1996.
Significant time was spent at the hearing and, I anticipate, in the days leading up to the hearing by reason of this claim. It was raised late, and there was an argument at the commencement of the hearing as to whether or not the defendant should have leave to amend his appeal statement in order to raise the issue. It is an issue that is clearly severable from the other issues in the case.
The second issue was whether or not Qantas' record-keeping sufficiently recognised the superannuation contributions, and the portion of which it claimed was not liable to payroll tax. Qantas succeeded on that issue. I concluded that Qantas' records did sufficiently evidence the contributions.
A substantial amount of affidavit evidence was prepared by Qantas on that issue. There were detailed and voluminous affidavits in which Qantas explained in detail how its records were kept and what its records show. At the hearing, not a great deal of time was spent on that issue. The facts to which Qantas' employees deposed were not in issue, and the matter was dealt with quite shortly both in argument and in my judgment. Nonetheless, although the issue did not take up much time at the hearing, it clearly would have resulted in the incurring of substantial costs.
The third issue was whether the methodology for apportioning part of the contributions paid by Qantas to fund the payment of benefits under the scheme that was adopted in CSR Ltd v Chief Commissioner of State Revenue could be applied to the contributions made by Qantas, insofar as they were payments of normal cost contributions.
Qantas failed on that issue. I concluded that such an apportionment could not be made.
It succeeded on the fourth issue, in that I concluded that Qantas could apportion its contributions for payroll tax purposes, to the extent that the contributions exceeded adjusted normal cost contributions.
So far as the issue on which Qantas failed is concerned, that is to say, the apportionment of normal cost contributions, I think it fair to say, as counsel for Qantas submits, that that was an issue on which a comparatively small amount of costs was likely to have been incurred. This was because the actuaries for both parties were agreed that there could be no such apportionment. Qantas maintained that there could be, notwithstanding the position taken by the actuaries, but the argument primarily involved questions of statutory construction rather than evidence.
It was, of course, a very important issue in terms of the outcome of the case. Qantas' failure on the issue has meant that it recovered about $4 million less than it otherwise would have recovered.
So far as the fourth issue is concerned, the apportionment of contributions, to the extent they exceeded adjusted normal cost contributions, this was an issue upon which the actuaries called by both parties differed, and it was a point on which I accepted Qantas' position.
Thus Qantas has had success on three of the four issues. It also says that it was the successful party in the proceedings, and that costs should follow the event. It submitted that it was prima facie entitled to a payment of all of its costs on the ordinary basis, pursuant to the prima facie position under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW). It submitted that that position should be departed from only if it could be said that the issue on which it failed was clearly dominant and severable, and it submitted that the issue on which it failed was not so dominant or severable.
Initially, the Chief Commissioner seems to have taken the same position, namely that the starting point is that Qantas was the successful party; but the Chief Commissioner submitted that there should be an adjustment of costs, and he should be required to pay only 37 per cent of Qantas' costs. That proportion reflected the percentage of the amount of the claim on which Qantas succeeded, being approximately $2.3 million divided by $6.26 million.
I do not accept that an apportionment according to the quantum of the claim on which Qantas succeeded is appropriate. The percentage of success measured against the quantum of the claim would bear no relation to how the costs of the litigation were incurred.
For myself, I doubt that the appropriate starting point is that it should be said that Qantas was the successful party because it recovered a refund of approximately $2.3 million, and that prima facie costs should follow the event. That is the correct way of approaching the matter looked at only from Qantas' perspective. But Qantas' claim had two components, and it succeeded on one of those components only. I think it could equally be said from the perspective of the Chief Commissioner that he succeeded in the proceeding because he succeeded in defeating Qantas' claim for a refund referable to an apportionment of Qantas' normal cost contributions. In monetary terms, that was substantially the larger claim.
For myself, I do not see why the question of who has succeeded should be approached only from the perspective of the plaintiff. Both parties partially succeeded and partially failed (see Perochinsky v Kirschner (No 2) [2013] NSWSC 837 at [21]-[23] and cf HP Mercantile Pty Ltd v Dierickx (No 2) [2012] NSWSC 1430 at [17]-[21]). However, what appears to be an analogous question was considered by the Court of Appeal in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425.
There the plaintiff succeeded at first instance on two separate claims for the payment of royalties. The claims were made in respect of two distinct locations. On appeal, the defendant succeeded in respect of one of those claims, and failed in respect of the other.
The successful appellant contended for the purposes of costs that there were two relevant events, namely, first, that the plaintiff respondent had succeeded on its claim in respect of one location; and secondly, after appeal, the defendant had succeeded in defeating the plaintiff's claims in respect of the other location.
That starting point was not accepted by the Court of Appeal. Macfarlan JA, (with whom Meagher and Barrett JJA agreed) said (at [27]) that:
"Consistent with this rule [UCPR r 42.1], it has long been accepted that a plaintiff who obtains judgment at trial for a monetary sum will ordinarily be entitled to an order that the defendant pay his or her costs, notwithstanding that the plaintiff might not have recovered the whole of the amount he or she claimed."
Macfarlan JA said (at [31]) that the plaintiff/respondent had a prima facie entitlement to an order for payment of its costs. His Honour said that a departure from that prima facie position was warranted, having regard to the particular circumstances of the case and the principles summarised in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38].
I consider that I am bound to follow that approach. But the question then is whether or not there is a justification for departing from the prima facie position that Qantas is entitled to its costs by reason of its failure on one of its claims.
In Bostik Australia Pty Ltd v Liddiard (No 2) the Court of Appeal said (at [38]):
"The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this court in Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373. Those principles may be summarised as follows:
• Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported) .
• In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal.
• If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick (No 2) [2006] NSWCA 374 at [27].
• Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed).
• A separable issue can relate to 'any disputed question of fact or law' before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].
• Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272.
These principles were applied in City of Canada Bay Council v Bonaccorso Pty Ltd (No 3) [2008] NSWCA 57 at [22] and most recently in Turkmani v Visvalingham (No 2) [2009] NSWCA 279."
In my view, and contrary to the submissions of counsel for Qantas, the issue on which Qantas failed was a severable issue from the other issues upon which it succeeded. The fact that neither actuary supported the apportionment for which Qantas contended so that there was little evidence addressed to the issue, as distinct from legal argument, demonstrates the separateness of the issue.
Moreover, in my view there is much to be said for the approach taken by Finkelstein and Gordon JJ in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [5], that fairness dictates how the discretion as to costs should be exercised, and that if an issue by issue approach produces a result that is fairer than giving the successful party all of his or her costs, notwithstanding his or her failure on particular issues, then the issue by issue approach should be applied.
Having regard to Qantas' failure on part of its claim, which in monetary terms was the greater part of its claim, and having regard to my conclusion that that claim involved a separable issue, I think fairness dictates that it not be entitled to the whole of its costs, but there should be an apportionment.
For the reasons I have given, that apportionment should not simply be based on the proportion of its success in monetary terms based upon its claim. See also in this respect Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) at [31].
It is common ground, and indeed is well established, that where there is a mixed outcome in the proceedings, the question of apportionment is a matter of discretion, and no mathematical precision can be expected, but rather, the exercise of discretion depends upon matters of impression and evaluation (Bostik Australia Pty Ltd v Liddiard (No 2) at [38]).
Having regard to the amount of time spent at the hearing on the issue concerning the correctness of judgment in CSR Ltd v Chief Commissioner of State Revenue, and having regard to what were evidently substantial costs incurred in preparing the case on the issue as to the adequacy of Qantas' record keeping, and having regard to the fact that on the single point where the evidence of the actuaries differed I accepted the position taken by Qantas, it is clear that Qantas should be entitled to substantially more than the 37 per cent of its costs which the Chief Commissioner submitted it should pay.
Qantas submitted that a further relevant consideration was that this case is said to be something of a test case. I will interrupt my reasons to ask a question of counsel.
[Discussion with counsel.]
HIS HONOUR: I understand that another proceeding in this Court and a proceeding in the NSW Civil and Administrative Tribunal have been stayed pending the outcome of this decision. I do not understand that the parties to other cases, to which the Chief Commissioner is a party, have agreed to abide by the outcome of this case, as distinct from the parties expecting that this case will be relevant, for whatever precedential value it might have, to the resolution of other cases.
Counsel for Qantas submitted that nonetheless, because the case was something of a test case, this was an additional consideration for the exercise of the costs discretion. In that regard, I was referred to observations of Gleeson CJ, Gummow and Heydon JJ in CSR Limited v Eddy [2005] HCA 64; (2005) 226 CLR 1 at [80] and [81]. They, however, concerned what I think is a different issue, namely, the terms upon which the High Court might grant special leave in a test case, particularly a test case involving a governmental authority such as the Commissioner of Taxation or a case where the parties' resources are markedly disparate. It could not be suggested that the fact that this is a test case has altered the quantum of costs that were incurred, and no such submission was made.
I do not accept the fact that this case might have some precedential value, unless and until the matter is taken further, is a reason for adjusting what would otherwise be the appropriate costs order.
Having regard to the matters to which I have referred, and approaching the matter as a matter of impression or evaluation, without attempting any mathematical precision, in my view the just result is that the defendant pay two-thirds of the plaintiff's costs.
I so order.
[3]
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Decision last updated: 29 July 2015