Queensland Maintenance Services Pty Ltd v Commissioner of Taxation

Costs of the interlocutory hearing on 10 June 2011 5 Relevantly, on or about 8 June 2011 a third-party notice to pay ("the Original Notice") was issued addressed to GoodStart Childcare Limited ("GoodStart"), the major debtor of the applicant, pursuant to s 260-5 of Sch 1 of the Tax Administration Act 1953 (Cth). The Original Notice sought 100 cents in the dollar of monies which GoodStart owed the applicant. The applicant filed an urgent interlocutory application in respect of the Original Notice on 10 June 2011 seeking the following orders: An order staying the notice to pay dated 8 June 2011 issued by the first respondent to the second respondent until the hearing of the application or until further or other order. An interlocutory injunction restraining the second respondent from complying with or further complying with the notice to pay or paying any money or any further money under or in accordance with the notice to pay to the first respondent until the hearing of the application or until further or other order. Further or alternatively, an order that an amount equivalent to the whole or party of the money or amounts received by the first respondent on or about 9 or 10 June 2011 under or pursuant to the notice to pay be paid or repaid to the applicant forthwith or further or alternatively be paid or repaid to the applicant on such terms and conditions as the Court thinks fit. 6 The urgent interlocutory application came before the Court on the same afternoon, being 10 June 2011. At that hearing it became clear that relevant monies had already been paid by GoodStart to the Commissioner pursuant to the Original Notice, and that it was not possible in light of the time of day and the imminent public holiday to reverse the banking transaction effecting that payment in time for the next pay day of the applicant's staff and contractors. Accordingly I took the view that an order staying the notice to pay issued to GoodStart would be futile, and that the application for an interlocutory injunction in those terms should be refused in accordance with accepted principle (cf Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552 at 559, Forbes v New South Wales Trotting Club Ltd (1979) 143 CLR 242 at 259, Humane Society International Inc v Kyodo Senpaku Kaisha Ltd [2006] FCAFC 116 at [14]). 7 Further, at the hearing of 10 June 2011 Counsel for the Commissioner informed the Court that the Commissioner was prepared to amend the third-party notice in futuro (TS 10 June 2011 p 16 ll 14-16, p 23 ll 10-45). It was clear that the parties were engaged in detailed discussions during adjournments throughout the course of the hearing in respect of variations to the Original Notice (TS 10 June p 26 ll 32-34). I accepted the submission of the Commissioner that he was unable to properly meet the interlocutory application and wished to file additional material (TS 10 June 2011 pp 9-10), and was also of the view that the application in its then form required significant amendment (TS p 37 ll 23-36). In light of this combination of facts I considered that the appropriate order was to refuse the additional interlocutory relief sought by the applicant, and set the substantive matter down for urgent hearing. 8 In summary, while the applicant accepts that costs in this proceeding should follow the event, it contends that it ought not be required to pay the costs of the Commissioner of and incidental to the interlocutory application filed and heard 10 June 2011. The applicant submits that it was required to bring an interlocutory application urgently in circumstances where the Original Notice requiring 100% of monies payable by GoodStart to the applicant was manifestly unreasonable and should not have been issued in the first place. Further, the applicant claims that had the Original Notice specified 20% of monies payable, the application may not have been necessary. Finally the applicant submits that the Commissioner had no additional information at the hearing of 10 June 2011 beyond that which he had had before the hearing of the application for interlocutory relief. 9 The Commissioner contends in summary that: the night before the interlocutory application was brought, the decision-maker had offered to reconsider the Original Notice if written reasons for reconsideration were provided, but no such reasons were provided in writing and the applicant chose instead to bring the interlocutory application; and the Original Notice would have been amended without the need for the interlocutory application at all had the applicant been reasonable and provided some reason why they wanted an amendment of the Original Notice; the payment of monies by the Commissioner to the applicant after the withdrawal of the Original Notice was done by the goodwill of the Commissioner and not by order of the Court. 10 In my view the applicant's submissions have merit. While the applicant was unsuccessful in respect of its application for interlocutory relief on 10 June 2011, it was actually, eventually, successful in substance in respect of that particular interlocutory application. This is because the Commissioner not only indicated at the hearing of that date that the Original Notice would be amended, but the Original Notice was subsequently withdrawn (in effect, retrospectively), 80% of the monies already paid by GoodStart to the Commissioner pursuant to the Original Notice were paid by the Commissioner to the applicant, and a new notice was issued to the applicant requiring only 20% of monies payable by GoodStart to the applicant to be directed to the Commissioner (affidavit of Craig Morelande filed 14 July 2011 paragraph 27). 11 The Commissioner submits that Australian Taxation Office ("ATO") officers had informed the applicant's solicitors on 9 June 2011 that something in writing was required as to the claimed threats to the continuation of the applicant's business from the Original Notice, but that the applicant had chosen to commence interlocutory proceedings instead of providing written reasons as sought. 12 In my view, while as a general proposition such a requirement by the Commissioner would have been reasonable and justified, in this case the commencement of interlocutory proceedings by the applicant was understandable. I take this view for the following reasons. 13 First, as evidence before the Court demonstrated, 90% of the applicant's income derived from monies paid by GoodStart. Because the Commissioner withdrew the Original Notice the Court has not been required to consider in a substantive hearing the circumstances in which the Original Notice was issued and whether it was valid. However it is clear that the financial affairs of the applicant had been under detailed examination by the ATO since 2009. It would be surprising if information as to the proportion of income derived by the applicant from GoodStart had not been in the possession of the ATO prior to the issue of the Original Notice. Certainly information to that effect was provided by the applicant's accountant and solicitor on 9 June 2011. 14 Second, the Original Notice was issued 7 days after amended assessments of tax plus shortfall interest charges were issued by the Commissioner, and received by GoodStart on 9 June 2011. There is evidence before the Court that the applicant only became aware of the issue of the Original Notice on 9 June 2011. I note that 9 June 2011 fell on a Thursday, two days before the commencement of the Queen's Birthday weekend, with attendant office closures. In my view it is not surprising that the applicant should immediately take urgent action in the Court to seek to protect its position. 15 Finally, as Ms Cameron for the Commissioner submitted, the refund of monies to the applicant was done by the goodwill of the Commissioner and not by order of the Court. I have already described the manner in which the Court was informed at the hearing on 10 June 2011 that the Commissioner had agreed to redirect a proportion of monies paid by GoodStart to the applicant. While in the circumstances the preparedness of the Commissioner to so act was laudable, this does not mean that the commencement of urgent interlocutory proceedings by the applicant was unnecessary. Notwithstanding the possibility that the decision-maker would revise his decision in respect of the proportion stated by the Original Notice on the provision of written material from the applicant, from the perspective of the applicant on 9 and 10 June 2011 a gamble by it on the goodwill of the Commissioner may well have appeared a risky prospect. The applicant was entitled to commence legal proceedings to protect its position and did so. 16 Although on 10 June 2011 I ordered that the interlocutory application be dismissed, I have described the circumstances attendant upon that decision. I do not consider that the application was entirely unnecessary as submitted by the Commissioner. In my view the costs of the Commissioner in respect of the interlocutory application filed 10 June 2011 should not be paid by the applicant.

Should costs be fixed? 17 Under the Federal Court Rules in operation prior to 1 August 2011, O 62 r 4(2)(c) provided that, where the Court orders that costs be paid, the Court may further order that that person pay a gross sum specified in the order. The equivalent under the current Federal Court Rules 2011 is r 40.02(b) which provides that a party or a person who is entitled to costs may apply to the Court for an order that costs be awarded in a lump sum, instead of, or in addition to, any taxed costs. 18 The Commissioner has submitted that his costs in this proceeding be fixed. While not specifically referring to the Federal Court Rules, I assume that the Commissioner is relying on either of the rules to which I have referred. No difference in substance between those rules is apparent for the purposes of this proceeding. 19 In support of that submission the Commissioner has filed an affidavit sworn by Ms Cameron on 8 February 2012. Annexed to that affidavit is a copy of the costs statement, invoices and covering correspondence sent to the solicitors for the applicant. The Commissioner submits, in summary, that his costs should be fixed to avoid incurring further costs of taxation which the applicant may be unable to pay. In her affidavit, Ms Cameron does not specifically state the fixed amount the Commissioner seeks in costs. In this respect the affidavit does not appear to comply with Practice Note CM4 issued by the Chief Justice of the Federal Court. However no issue has been taken by the applicant with the material of the Commissioner in this respect. 20 In the body of the affidavit it is clear that the total sum in costs and disbursements sought is $72,589.73, being $51,469.73 in fees for Counsel and Auscript, and $21,120.00 in respect of additional costs detailed in the affidavit. 21 Mr Hargreaves for the applicant submits that the costs payable by the applicant should be assessed rather than fixed because, in summary: the administrators have not previously been involved in the matter; the administrators were appointed on 3 January 2012 and have had limited opportunity to review material associated with this matter; the draft bill of costs submitted by the Commissioner deals with a number of issues that the administrator is not able to assess; in the circumstances it would not be unreasonable that the costs should be assessed as is the norm. 22 In my view costs ought be fixed in these proceedings in the amount of $72,589.73 less costs incurred by the Commissioner of and incidental to the interlocutory application filed 10 June 2011. While the issues of law raised in the proceedings were complex, in contrast the bill of costs in this matter is simple and uncomplicated, detailing costs referable to three days of hearing and preparation for those hearings. I am not persuaded that, in a short period of time, the administrators will be unable to effectively and efficiently comprehend the material and assess the issues associated with this matter. Further, in light of the fact that the applicant is now in voluntary administration there is a risk that the financial burden for any taxation process will fall entirely on the Commissioner. In making these comments I note a similar approach previously adopted in comparable circumstances in this Court (cf observations of Kenny J in Boyapati v Rockefeller Management Corporation (No 2) [2008] FCA 1375 at [42] and Logan J in Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 6) [2011] FCA 688). I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier.