Sibai v Deputy Commissioner of Taxation

1. The respondent pay 50% of the applicant's costs of and incidental to this proceeding, including the costs application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BROMWICH J: 1 This is the determination of the question of costs arising from the discontinuance of this proceeding brought by the applicant, Mr Adnan Sibai, for judicial review of notices issued under s 8AAZN of the Taxation Administration Act 1953 (Cth) (TAA) (8AAZN Notices), for the recovery of overpayments totalling over $3 million. The overpayments were said to have been made by the Commissioner of Taxation to him in his capacity as a registered tax agent for certain client/taxpayers, which were said not to have been passed on by him to the relevant client/taxpayer. The proceeding was discontinued because the respondent, the Deputy Commissioner of Taxation, withdrew the 8AAZN Notices. The total of the 8AAZN Notices and interest charges was over $5 million. 2 In summary, Mr Sibai contends that the Deputy Commissioner should pay his costs because he was the "clear winner", citing ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; 101 FCR 548 per Burchett J at [6]-[7]. He also relies upon the observations of Hill J in Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201: (1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order: Stratford [J T Stratford & Son Ltd v Lindley (No 2) [1969] 1 WLR 1547] and the SEQEB case [South East Queensland Electricity Board v Australian Telecommunications Commission (unreported, Pincus J, Federal Court, 10 February 1989]. (2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial: Stratford. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue. (3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (SEQEB). (4) In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation: cf Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371. (5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted: cf Re Asiatic Electric Co Pty Ltd [1973] 1 NSWLR 603 at 606, a case which, however, depended upon the specific wording of the statute under consideration. 3 Mr Sibai places particular reliance on proposition at (3) above from Aust-Home Investments as to the reasonableness of the conduct of the Deputy Commissioner in issuing and then withdrawing the 8AAZN Notices. In particular he relies upon the following key aspects relevant to those notices: (a) a taxpayer/client is obliged to nominate a bank account for the receipt of refunds, which may be an account held by "the entity's registered tax agent" per s 8AAZLH(2A)(b) of the TAA; (b) s 8AAZLH(5) provides that "[i]f the Commissioner pays a refund to the credit of an account nominated by an entity, the Commissioner is taken to have paid the refund to the entity"; (c) despite that legislative regime, the Deputy Commissioner of Taxation has long proceeded upon the basis, furnished in a published policy, that a debt obligation arose when refund money was paid to a tax agent and not passed on to the relevant taxpayer even if the payment was made to an account that was the taxpayer's nominated account, with it being asserted that this was the situation with the deposit of the refunds paid to Mr Sibai; (d) the 8AAZN Notices issued against Mr Sibai between December 2015 and June 2016 upon that basis gave rise to general interest charges and were also part of the debt of Mr Sibai initially relied upon by the Deputy Commissioner to obtain freezing orders against his assets in 2017, and not excised from the operation of those orders until 22 September 2021 (with the Deputy Commissioner reserving his position on the underlying s 8AAZN liability); (e) on 20 September 2019, Judge Marks of the Victorian County Court in Deputy Federal Commissioner of Taxation v MWB Accountants [2019] VCC 1516, held that s 8AAZLH(5) of the TAA did not authorise the issuing of notices to tax agents in respect of client refunds received into the tax agent's bank account as the taxpayer's nominated account; (f) on 3 September 2020, the Victorian Court of Appeal heard the Deputy Commissioner's application for leave to appeal and also the merits of that appeal, but on 18 September 2020, the Deputy Commissioner of Taxation filed a notice of discontinuance and on 24 September 2020 that Court ordered the discontinuance of the appeal; (g) at no time until after 24 September 2020 did the Deputy Commissioner draw Mr Sibai's attention to MWB Accountants; (h) the 8AAZN Notices should never have been issued, and should not have been maintained after MWB Accountants, as is made clear by the Deputy Commissioner from 4 November 2021 expunging the s 8AAZN debt, and subsequently the corresponding general interest charges, from his account with the Australian Taxation Office (ATO); (i) on 1 December 2021, Mr Sibai offered to settle costs for the sum of $45,521 inclusive of GST. 4 Mr Sibai therefore contends that the outcome should be that the Deputy Commissioner pay his costs on a party/party basis until as agreed or taxed between 23 September 2021 and 1 December 2021, and upon an indemnity basis thereafter. 5 The Deputy Commissioner contends that instead, each party pay their own costs or there be no order as to costs, not disputing the principles relied upon by Mr Sibai. The core and substance of the Deputy Commissioner's case for not being required to pay Mr Sibai's costs is that a letter was written asking for a further week to consider whether to withdraw the 8AAZN Notices and asking that the proceeding not be commenced until after that date, but the proceeding was commenced, and the notices were withdrawn within the additional time requested. 6 Mr Sibai places a very different complexion on what took place, including by reason of the situation with the validity of 8AAZN Notices summarised above. The main aspects of Mr Sibai's case in that context is that: (a) while ordinarily, when parties settle or resolve a proceeding without the need for a final hearing, the proper outcome is to make no order as to costs, citing the decision of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; 186 CLR 622 at 624-625, that is subject to exceptions. While his Honour also gave as an example of an exception a party faced with having no reasonable alternative but to commence a proceeding by reason of an administrative decision-maker acting unreasonably or refusing to make a decision, which is not the present situation, the exception that Mr Sibai relies upon is the notion of an effective surrender articulated by Burchett J in ONE.TEL in part of [6]: In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs. (b) while it is true that this proceeding was only on foot from 3 November to 2 December 2021, it had been foreshadowed and pending since 22 September 2021, being time that was occupied by the Deputy Commissioner considering his position following MWB Accountants and the decision to abandon the appeal from that decision; (c) the decision is best characterised as a complete surrender of the kind identified by Burchett J in ONE.TEL at [7]: By contrast with the decisions I have been discussing, the present matter involves a clear winner. The applicants, by their proceeding, sought to challenge the validity of certain notices, and to have them set aside. The respondent, after initially defending those notices, encountered at least an evidentiary difficulty, and acknowledged that they were to be set aside. That means that the applicants have succeeded, just as the respondent succeeded in Ahmetaj v Minister for Immigration and Multicultural Affairs [1999] FCA 332, where a proceeding failed by reason of the occurrence of an event that was always liable to occur and to defeat the proceeding; in those circumstances, Sackville J, when the hearing did not proceed, distinguished Ex parte Lai Qin and made a costs order. As in that case, so here, the result one party sought was achieved without a hearing, but not by a "settlement" in the ordinary sense, or as McHugh J used the word, and certainly not by what his Honour called "extra-curial means". (d) further, the Deputy Commissioner's conduct was unreasonable: (i) in relation to the freezing order continuing to apply to the 8AAZN Notices debt, not just beyond the September 2019 decision of Judge Marks in MWB Accountants and the abandonment of the appeal a year later, but until that decision was brought to his attention by Mr Sibai's affidavit and submissions and then reducing the ambit of the freezing orders to exclude that debt, while reserving his position; (ii) in taking some 40 days to make a decision in the period from 23 September to 4 November 2021; and (iii) in maintaining the debt and general interest charge accruing daily while that decision was being made. 7 In relation to the last point above, I confess to not really understanding what else was supposed to happen while a decision was being made, but I will assume in Mr Sibai's favour that there was some mechanism to suspend or lift the general interest charge pending the decision, however impractical and unrealistic that might have been. Mr Sibai asserts that it was reasonable for him to commence this proceeding when the Deputy Commissioner permitted the general interest charge to accrue on a daily basis (as it had for some years), and after waiting 38 days for a decision. The reasons and rationale for not waiting the further week requested are not expressly or clearly explained. 8 The Deputy Commissioner takes issue with numerous aspects of Mr Sibai's case as summarised above, many of which descend to details that I would not regard as determinative as they go to collateral questions as to whether the outcome in MWB Accountants necessarily applied, and the absence of evidence to demonstrate that it did (a point that Mr Sibai contests) which I address below. At the same time, they somewhat inconsistently accuse Mr Sibai of seeking a shadow trial on that issue. The main aspects of the Deputy Commissioner's case against any adverse costs order being made beyond those sorts of considerations is simply that had Mr Sibai waited a further week, there would have been no need to commence this proceeding, with that not being a lengthy period, noting that interest had been accruing for years since 2015-2016, as against a few more days. The Deputy Commissioner suggests that an extension of time for the parts of Mr Sibai's case that needed it was not assured, but my view is that this was highly likely to have been granted in the circumstances. 9 The conclusion I reach is that there has been a measure of unreasonableness on both sides. Once the Deputy Commissioner had made the decision to abandon the appeal from the September 2019 decision in MWB Accountants in September 2020, it must have been, or should have been, clear well before September 2021 that a decision had to be made as to whether or not to seek to distinguish that situation from the present one by reason of materially different facts so that the legal conclusion might be different. Having noted that, it seems that those conducting this proceeding may not have been aware of the interstate decision in MWB Accountants until Mr Sibai brought it to their attention. 10 I do not intend to go down that rabbit hole of determining whether or not the course of distinguishing MWB Accountants was viable, because the simple and incontestable fact is that the Deputy Commissioner could not ultimately have thought that there were sufficient prospects of success to warrant defending the validity of the 8AAZN Notices and instead decided to withdraw them altogether. That is a sufficient basis for a conclusion that the ultimate likelihood, not necessarily certainty, of success of Mr Sibai's challenge to the 8AAZN Notices was conceded by that step being taken. One is left with the distinct impression that the Deputy Commissioner's delay in making the decision to do so might not have been due to this case alone, but perhaps due to the ramifications for other cases. Or it might have been a function of being caught off guard, and things simply moving too slowly in the shadow of threatened litigation. Irrespective of whether either is so, there is no sufficient explanation given for why, a year after the abandonment of the MWB Accountants appeal, it took from 22 September 2021 until early November 2021 to make a decision on whether the 8AAZN Notices would be maintained against Mr Sibai, especially as he had foreshadowed the commencement of this proceeding on 23 September 2021 if they were not withdrawn. 11 On Mr Sibai's side of the ledger, what is wholly absent from his evidence or submissions is any adequate explanation as to why the Deputy Commissioner's request for an additional week was not acceded to. Perhaps he and his legal advisors considered that the Deputy Commissioner had more than sufficient time to make a decision about whether or not to withdraw the 8AAZN Notices and was not prepared to wait any longer. Perhaps it was thought that commencing this proceeding would bring things to a head and result in a quick decision being made. Perhaps even it was thought that substantial costs had already been incurred, and the additional costs of commencing this proceeding were relatively small, so there was a measure of confidence as to the likely withdrawal of the 8AAZN Notices, and therefore the costs already incurred would be brought into the umbrella of costs incurred in the proceeding. I do not know. However, ultimately I am not satisfied that it was reasonable in the circumstances not to give the Deputy Commissioner the extra week sought, with perhaps a clear indication that there would be no further delay. 12 In all the circumstances, there seems to be some measure of injustice if no order for costs is made; and some measure of injustice if Mr Sibai's decision not to wait a week means that all of the costs flowing from that are borne by the Deputy Commissioner. Doing the best I can to arrive at a just result overall, and apportioning responsibility for what has taken place in relation to the commencement of this proceeding, I consider that the Deputy Commissioner should pay half of Mr Sibai's costs, as assessed or agreed, of and incidental to this proceeding, including this costs application. In this way, I am satisfied that there has been a fair and reasonable apportionment of responsibility and liability for the costs incurred by Mr Sibai. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Bromwich.