Study and Prevention of Psychological Diseases Foundation v Commissioner of Taxation

1. Pursuant to section 23 of the Federal Court of Australia Act 1976 (Cth) and rules 1.32 and 1.36 of the Federal Court Rules 2011, these orders and reasons for judgment of the Court in support of the making of the orders are published from Chambers.
2. The respondent pay 25% of the costs of the applicant of and incidental to the principal proceeding the subject of orders and reasons for judgment published in Study and Prevention of Psychological Disease Foundation v Commissioner of Taxation [2015] FCA 1117. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GREENWOOD J: 1 These proceedings are concerned with the disposition of the costs of and incidental to the principal proceeding. 2 In the principal proceeding, the applicant sought to challenge a decision of the Administrative Appeals Tribunal (the "Tribunal") pursuant to s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (the "AAT Act"). 3 It is not necessary to set out in these reasons the scope of content of the challenge by the applicant to the Tribunal's decision which, in turn, considered decisions of the Commissioner of Taxation. It is enough to say that these reasons are to be read in conjunction with the reasons published in Study and Prevention of Psychological Diseases Foundation v Commissioner of Taxation [2015] FCA 1117. 4 In the principal proceedings, the applicant contended that three questions of law arose for determination. Those questions were described this way in the reasons for judgment in the principal proceeding: 11. First, did the Tribunal misconstrue the phrase "charitable institution" as it appears in Item 1.1 of the table in s 50-5 of the 1997 Act and its application to the integers of s 50-105 and s 50-110 of the 1997 Act? An examination of that question is said to reveal a failure by the Tribunal in undertaking the correct methodological analysis required of it by the authorities as the Tribunal failed, it is said, to consider and make findings about: whether SPED's objects were confined to charitable purposes; the circumstances concerning SPED's formation and the relationship between those matters and SPED's purposes; and, a consideration of SPED's activities in the specific context of its objects and the circumstances of its formation. 12. The applicant also says that the Tribunal impermissibly imposed a requirement to the effect that in order for SPED to satisfy the notion of a "charitable institution" as that term is understood for the purposes of Item 1.1 of the table at s 50-5 of the 1997 Act, SPED had to establish, as an element of "public benefit", a "benefit to the community that is real and of value" and "available to the public" before SPED's purpose could be characterised as "for the public benefit". 13. Second, did the Tribunal deny the applicant procedural fairness or constructively fail to exercise its statutory review function because either the Tribunal made a finding of fact that the activities of the applicant did not amount to "research" when that question was not in issue, or alternatively, the Tribunal failed to address evidence, said to be cogent and substantial evidence, relating to the activities of the applicant as "research" and, in particular, failed to address a document described as "Methodology Overview of the SPED Research"? 14. Third, did the Tribunal deny the applicant procedural fairness or fail to take into account relevant considerations by failing to consider submissions made by the applicant going to six identified propositions (and other matters) concerning the exercise of the discretion conferred by s 426-55 of Sch 1 of the TAA and, in particular, the issue of the date upon which revocation under s 426-55(2) would take effect? 5 In the principal proceedings, the vast majority of the time, analysis and argument concerned the first two grounds of appeal. 6 As to the third ground of appeal, the Court was satisfied that the Tribunal had failed to address submissions put on by the applicant going to the question of the effective date of revocation of particular endorsements issued by the Commissioner and described at [3] of the reasons for judgment in the principal proceedings in these terms: 3. The Commissioner of Taxation (the "Commissioner") issued the following endorsements to the applicant: (a) an endorsement, effective from 1 January 2005, under s 50-110 of the Income Tax Assessment Act 1997 (Cth) (the "1997 Act") as an entity exempt from income tax as a "charitable institution" having regard to Item 1.1 in the table in s 50-5 of the 1997 Act; (b) an endorsement, effective from 1 July 2005, under s 176-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the "GST Act"), as a charitable institution; (c) an endorsement, effective from 1 January 2005, under s 30-125 of the 1997 Act as a "deductible gift recipient" having regard to Item 1 of the table at s 30-15 and Item 1.1.6 in the table at s 30-20(1), on the footing that SPED satisfied the description at Item 1.1.6: "a charitable institution whose principal activity is to promote the prevention or the control of diseases in human beings"; and (d) an endorsement, effective from 1 July 2005, under s 123D(2) of the Fringe Benefits Tax Assessment Act 1986 (Cth) (the "FBT Assessment Act"), as a health promotion charity. 7 As to the third ground, however, a number of submissions were made in support of it. 8 However, the applicant was successful only in respect of a particular aspect of those submissions. That limited matter was described by the Court in these terms: 218 In the course of its reasons, the Tribunal does not make any reference to the second and third submissions: that is, the contentions relating to the auditor and the documents and whether SPED had discharged any obligations cast upon it for the purposes of those documents. 219 It seems plain enough that the Tribunal regarded its assessment of SPED's actual activities and financial affairs as the critical considerations informing the exercise of the discretion. The reasons, however, do not make any reference to the submissions mentioned at [215] and [216] which may have some relationship with the matters at [213]. The reasons do not contain any reference to a phrase such as "notwithstanding SPED's submissions concerning revocation" which might suggest that the Tribunal has fully considered all of the written and oral submissions and elected not to recite in the exposed reasons each reason for rejecting each submission. 220 In the absence of at least some reference to the applicant's submissions concerning, particularly, the contentions in relation to the auditor and the two nominated documents in the context of SPED's contentions of compliance with what was required of it, an inference arises that those matters were not considered by the Tribunal. 221 SPED is entitled to have those matters addressed in the exercise of the Tribunal's statutory review function. 222 For that reason, the decision of the Tribunal is to be set aside and the matter remitted to the Tribunal for consideration of the applicant's submissions on the question of the effective date of revocation, only. The propositions put to the Tribunal need to be considered and addressed notwithstanding that the Tribunal has expressed, in a shorthand form, the view that its consideration of SPED's actual activities and SPED's financial affairs are the two particularly important considerations informing its existing decision. 9 In the result, the applicant was substantially unsuccessful in the proceeding. 10 Nevertheless, the applicant obtained a remedial order from the Court setting aside the decision of the Tribunal and remitting the matter to the Tribunal to be heard and decided again in relation to the particular question of the effective date of revocation of the four endorsements described at [3] of the reasons for judgment published on 21 October 2015. 11 The setting aside of the decision and remittal of the matter to the Tribunal to enable reconsideration of the question of the effective date of revocation of the endorsements was necessary as the Tribunal had failed, as a matter of inference drawn from the reasoning, to take into account aspects of the applicant's submissions: see [7] of these reasons. 12 In relation to the disposition of the costs and the exercise of the discretion conferred on the Court by s 43 of the Federal Court of Australia Act 1976 (Cth), the interests of justice must properly take account of the circumstance that the applicant was in substance unsuccessful on its primary contentions although it made good the proposition that the Tribunal had failed to take into account submissions made on a particular aspect of one ground of challenge. 13 The principles which inform the exercise of the discretion as to costs have been extensively discussed in Oshlack v Richmond River Council (1998) 193 CLR 72. In further commenting upon the observations made in Oshlack, the High Court also recognised in Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 at [25] that although the award of costs is discretionary, generally that discretion is exercised in favour of the successful party. 14 Nevertheless, much time, analysis, work, effort, argument (written and oral) and cost was incurred in addressing substantial issues upon which the applicant was entirely unsuccessful. 15 The parties in written submissions have made reference to decisions of intermediate Courts of Appeal addressing the principles which guide the exercise of the discretion in circumstances where mixed success has occurred in the final judgment for the relevant parties. Those decisions include: The State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174; Chen v Chan [2009] VSCA 233; Elite Protective Personnel Pty Ltd and Another v Salmon (No 2) [2007] NSWCA 373 and Cadbury Schweppes Pty Ltd v Darrel Lea Chocolate Shops (No 3) [2007] FCAFC 119. Other authorities have also been referred to by the parties in their submissions. I have taken all of these authorities into account. 16 Ultimately, the particular circumstances of the particular case are the factors which must guide the exercise of the discretion where an applicant has been only partially successful. Having regard to the true burden of the challenge in this Court to the Tribunal's decision, it is right to say that the applicant was substantially unsuccessful notwithstanding that it obtained a remedial order on a narrow point which it made good. 17 It seems to me that the interests of justice are served by making an order that the respondent pay 25% of the applicant's costs of and incidental to the proceeding. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.