Russell v Commissioner of Taxation

REASONS FOR JUDGMENT THE COURT: 1 We published our reasons for judgment in this matter on 4 February 2011. At that time we invited the parties to make further submissions as to forms of order and as to costs. The respondent has proposed the following substantive orders: 1 The appeal be allowed in part; 2 The orders made by the Honourable Justice Logan on 11 December 2009 be varied as follows: (a) Order number 9 be set aside and in lieu thereof order: The assessment is set aside and the matter is remitted to the respondent for the issuing of an amended assessment on the footing that the resident agent amount should be excluded and that the partnership is entitled to such input tax credits as relate to the conduct of a forestry enterprise and a naturist retreat enterprise up to 23 February 2004 but not otherwise entitled to the input tax credits claimed. (b) order number 11: subparagraph (b) be deleted. 3 The appeal otherwise be dismissed. 2 We have deleted the word "numbered" which appears in para 2(b) of the proposal. As the appellant has not suggested to the contrary, we are content to make those orders. 3 The only other outstanding question is as to costs, both at first instance and on appeal. As to the costs at first instance, the fact that we have allowed the appeal in part means that the question must be addressed afresh in light of that outcome. Nonetheless his Honour's views, as expressed in his orders, are relevant considerations. 4 The question of costs, on appeal and at first instance, is complicated. At both stages the Court has considered two separate proceedings. One matter arose pursuant to the Income Tax Assessment Act 1997 (Cth) (the "1997 Act"), whilst the other arose pursuant to the A New System (Goods and Services Tax) Act 1999 (Cth) (the "GST Act"). The matter arising pursuant to the 1997 Act concerned Part 2-42 of the 1997 Act. We have upheld the primary Judge's decision, although on somewhat different grounds. In other words, the appellant has been unsuccessful. At first instance the matter arising pursuant to the GST Act concerned three separate business activities allegedly conducted by the appellant or a partnership of which he was a member. They were an accountancy practice, a naturist retreat and a forestry operation. At first instance, the appellant succeeded with respect to the forestry operation but otherwise failed. There has been no challenge to the correctness of the decision concerning the forestry operation. On appeal the appellant has succeeded in connection with the naturist retreat. Such success was based upon our view that the primary Judge was misconceived in his approach to the evidence. Our decision depended substantially upon a close analysis of his Honour's reasons, having regard to earlier authorities and relevant legislation. It does no disservice to the appellant to say that he contributed little to this aspect of the case. 5 We do not understand the appellant to assert that there are any amounts by way of costs which he can properly recover. The respondent seeks 75% of his costs of the appeal as against the appellant. The appellant has suggested a figure of 66.67%. We are inclined to the view that the respondent's submissions more accurately reflect the success which the parties have respectively enjoyed on appeal. We propose to order that the appellant pay 75% of the respondent's costs of the appeal, including reserved costs. 6 As to the costs below, the primary Judge ordered that the appellant pay 66.67% of the respondent's costs. This was upon the basis that the Commissioner had been successful in connection with the appeal pursuant to the 1997 Act but had been unsuccessful in respect of one of the three aspects arising in connection with the GST Act appeal. On appeal the appellant has been successful on another aspect. The basis of his Honour's award appears at [35] of his reasons as follows: So far as the determination of a percentage of costs is concerned, there is merit in each of the approaches evident in the submissions of the parties. On the one hand, the Commissioner points to the preponderance of issues upon which he has succeeded. On the other hand, Mr Russell points to the substantial reduction he has achieved in his hitherto assessed indebtedness to the Commonwealth as a result of these appeals. It will recognize the former of these approaches to award the Commissioner the greater part of his costs. However, it would give undue recognition to the latter of these approaches for that greater part to be, before set off or adjustment, the 80% sought by the Commissioner. In my opinion, the percentage that is more appropriate in the circumstances is 66.67% or, expressed another way, two-thirds. 7 There is no appeal against the order as to costs. We infer that the parties accept that given the outcome at first instance, the approach taken to the question of costs was broadly correct. In approaching the question afresh, and giving appropriate weight to the views expressed by the primary Judge upon the facts as they then appeared, the question is how we should assess the respective degrees of success enjoyed by the parties at first instance, taking account of the outcome on appeal. Clearly the extent of the appellant's success has been increased as a result of the appeal. However the fact remains that the appellant failed in connection with the appeal pursuant to the 1997 Act which was, in our view, the major aspect of proceedings below and on appeal. Further, many of the issues arising in connection with that matter were closely related to issues which fell for consideration in connection with the question as to whether the appellant's "partnership" was carrying on an accountancy practice at relevant times, the issue on which he has failed, both at first instance and on appeal. The amount in issue in connection with the issue upon which the appellant succeeded on appeal appears to have been $2,739.00. The amount in respect of the issue upon which he failed was in excess of $27,000.00. 8 Although it can only give a broad indication as to the way in which the issues were treated at trial, we note that in his Honour's reasons for judgment, which extend over 77 pages, about 16 pages were taken up in a recitation of the facts; almost 40 pages were taken up in discussing the appeal pursuant to the 1997 Act; something like 20 pages were devoted to discussing the GST Appeal, including penalty; and about three pages were taken up in formulating orders. Of the 20 pages concerning the GST appeal, seven pages were devoted to the accounting practice, and almost seven pages dealt with the forestry operation. About two and a half pages were taken up in consideration of the naturist retreat question. In the circumstances we consider that a two-thirds apportionment will fairly reflect the outcome below, making allowance for the variation to that outcome which we have made on appeal. 9 We therefore see no reason to vary the order for costs made below. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Dowsett, Edmonds and Gordon.