Shord v Commissioner of Taxation

1. Each party is to bear their own costs of the appeal. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

SIOPIS AND WHITE JJ: 1 The Full Court delivered judgment in this appeal on 26 October 2017 and invited the appellant, Mr Michael Shord, and the first respondent, the Commissioner of Taxation (the Commissioner), being the parties who were represented at the hearing of the appeal, to make written submissions in respect of the costs of the appeal. 2 Before dealing with those submissions, it is convenient to mention the following. 3 The appeal to the Full Court was from the orders of the primary judge who had dismissed the appellant's appeal on questions of law from the decision of the Administrative Appeals Tribunal (the Tribunal). The Tribunal had upheld the Commissioner's decision to issue amended assessments and penalties to Mr Shord. 4 The amended notice of appeal contained two grounds of appeal. At the hearing of the appeal on 14 February 2017, the appellant moved to amend further his amended notice of appeal to add to his first ground of appeal a complaint that the appellant had been denied procedural fairness before the Tribunal. This was not an argument which had been raised before the primary judge. 5 At the hearing, the Full Court granted leave to the appellant to amend further his amended notice of appeal to include the procedural fairness complaint. The appellant succeeded on the first ground of appeal but only on the basis of the new complaint of denial of procedural fairness. The appellant's second ground of appeal was dismissed. 6 By its orders of 26 October 2017, the Full Court, also, remitted to the primary judge the question of whether the appellant's tax appeal should be remitted to the Tribunal for further hearing, or whether the two unresolved appeals on questions of law from the Tribunal, which were originally before the primary judge, could be determined by him. 7 Notwithstanding that the appellant had succeeded on only one of the two grounds of appeal, and, then, only by reason of a late amendment, the appellant contended that the "Chapter II Executive" should pay his costs of the appeal. The appellant referred to the "Chapter II Executive" as being either the Commissioner or the Tribunal, which was the second respondent to the Full Court appeal, but was not represented at the hearing of the appeal. 8 The appellant contended that the first ground of appeal was the predominant ground of appeal because his success on the first ground of appeal had the potential to reduce the appellant's tax liability by a greater amount, than had he succeeded on the second ground of appeal. 9 Further, the appellant contended that his costs should be paid on an indemnity basis. This was because, as we understand the appellant's argument, the Commissioner had prolonged the litigation and the Tribunal had made an untenable finding by finding that the appellant was not an employee for the purposes of s 23AG(7) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936), after the counsel for the Commissioner had stated at the commencement of the Tribunal hearing that the Commissioner did not intend to pursue that issue. 10 The appellant's submissions are rejected. 11 As mentioned, the appellant succeeded upon a ground of appeal which was not argued before the primary judge and he failed on the second ground of appeal. 12 As is evident from the primary judgment, the circumstances relating to the amendment of the first ground of appeal were the following. 13 The appellant filed his notice of appeal to the Full Court on 20 July 2016 which raised four grounds of appeal. The first two grounds of appeal took exception to the findings of the primary judge upholding the finding by the Tribunal that the appellant was not an employee for the purposes of s 23AG(7) of the ITAA 1936. The other two grounds of appeal criticised the approach of the primary judge in rejecting the appellant's contentions in respect of his claimed entitlement to an offset in respect of his alleged payment of foreign tax on his foreign income. There was in that notice of appeal no contention that there had been a breach of procedural fairness by the Tribunal in finding that the appellant was not an employee for the purposes of s 23AG(7). This is not surprising as no argument to that effect had been made before the primary judge. 14 On 17 August 2016, the appellant filed an amended notice of appeal which reduced the grounds of appeal from four to two grounds of appeal but, by including prolix particulars and argument, the appellant expanded the length of the document very considerably. The grounds of appeal in the amended notice of appeal ran to six and a half typed pages. The first amended ground of appeal which attacked the primary judge's findings upholding the Tribunal's decision that the appellant was not an employee, ran to two pages. The second amended ground of appeal which impugned the primary judge's findings in respect of the foreign tax offset question ran to four and a half pages. Despite their length, the amended grounds of appeal did not complain that there had been a denial of procedural fairness by the Tribunal. 15 It was only on 1 February 2017, 13 days before the date of the hearing of the appeal, that the appellant filed an interlocutory application to raise as a part of the first ground of appeal a claim that there had been a breach of procedural fairness in the course of the Tribunal finding that the appellant was not an employee for the purposes of s 23AG(7). Shortly after the amendment application was filed, the Full Court determined that the interlocutory application should be heard at the hearing of the appeal. 16 As mentioned in the primary judgment, once, at the appeal hearing, the Full Court gave the appellant leave to amend the amended notice of appeal to raise the procedural fairness ground, the Commissioner conceded the ground. 17 On the other hand, the second ground of appeal which, as we have said, was part of the original notice of appeal and very considerably expanded in the amended notice of appeal, was argued on the merits and lost by the appellant. 18 It is well accepted that in exercising the discretion to award costs, the Court may have regard to the issues in respect of which each of the parties has been successful and apportion costs in this way. 19 In this case, each of the parties was successful in respect of one of the two grounds of appeal. Accordingly, it is open to this Court to exercise its discretion by ordering that each party should bear their own costs. In our view, the discretion should be exercised in this way for the following reasons. 20 First, it is far from clear that the appellant's success on the first ground of the appeal will reduce his tax liability to a greater extent than if he had succeeded on the second ground of appeal. The extent of any reduction in the appellant's tax liability which will attend his success on the first ground of appeal is uncertain, and will depend upon concessions made by the Commissioner and the findings either of the primary judge or the Tribunal on remittal. Further, the Commissioner has contended that the extent of the potential reduction in the appellant's tax liability had the appellant succeeded on the second ground of appeal would have marginally exceeded the amount which the appellant nominated in respect of his success on the first ground of appeal. 21 Secondly, and in any event, we are of the view that, in the circumstances of this case, this factor does not carry any weight in relation to the exercise of the costs discretion. Rather, the factor that is of significance in the exercise of the costs discretion is the fact that the argument upon which the appellant succeeded was only raised by a late amendment by the appellant. In our view, the proper approach to adopt is that adopted by the Full Court in Australian Postal Corporation v Botany Municipal Council (1989) 69 LGRA 86 where the Full Court observed at 95: However, we do not think Australia Post should receive its costs of the appeal. We are of the opinion that it has succeeded on a ground neither adequately (if at all) argued before Lockhart J nor raised on the hearing of the appeal until the last minute. In these circumstances we think there should be no order as to the costs of the appeal. 22 Indeed, in our view, we would have been inclined to order that there should be no order for costs of the appeal and that the appellant should be required to pay the costs thrown away by reason of the late amendment. However, somewhat generously, in our view, the Commissioner has not sought an order in respect of the costs thrown away by reason of the late amendment to the amended notice of appeal. 23 Further, we would observe that in our principal judgment at [100], we dissociated ourselves from the criticisms which Logan J made of the Commissioner's conduct and that of his legal representatives. We continue to dissociate ourselves from Logan J's criticisms of the Commissioner's conduct and that of his legal representatives which he has repeated in his reasons for judgment in this costs judgment. 24 For the sake of completeness, we mention that by an email of 11 January 2018, the appellant drew the attention of the Full Court to the Full Court decision in CHF16 v Minister for Immigration and Border Protection (No 2) [2017] FCAFC 215 as an instance of where the Full Court had ordered costs in an appeal where the appeal had succeeded on an argument not raised before the primary judge. However, the circumstances in which costs were awarded in that appeal are distinguishable and the case is of no assistance in relation to the exercise of the costs discretion in this case. 25 Accordingly, we order that each party bears their own costs in respect of the appeal. There will be no change to the costs orders made by the primary judge. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Siopis and White.