The Buddhist Society of Western Australia Inc v Commissioner of Taxation

Federal Court of Australia|2021-11-26|Before: McKerracher J

The respondent pay two thirds of the applicant's costs of the proceeding, to be taxed or assessed if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MCKERRACHER J: 1 On 4 November 2021, judgment was delivered on the applicant's (the Buddhist Society of Western Australia's) originating application, which invoked the jurisdiction of this Court to both Appeal an Objection Decision of the respondent (the Commissioner of Taxation) under Pt IVC of the Taxation Administration Act 1953 (Cth) (TAA) and to Review that same decision under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR Act). The Society's dispute with the Commissioner concerned the Commissioner's decision to revoke the Society's status as a deductible gift recipient (DGR Status) with respect to a building fund operated by the Society. The Commissioner made the Revocation, and effectively affirmed that decision in the Objection Decision, on the ground that the Society was not entitled to DGR Status because the building in question was not used 'as a school or college' as required by Item 2.1.10 of the table subjoined to s 30-25(1) of the Income Tax Assessment Act 1997 (Cth). 2 In The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2) [2021] FCA 1363, I dismissed the Appeal, but granted relief under the Review on the basis that the Commissioner had proceeded on a misunderstanding of the law in the Objective Decision by applying an incorrect definition of 'school or college'. Accordingly, I made the following orders: 1. The appeal pursuant to s 14ZZ(1)(a)(ii) of the Taxation Administration Act 1953 (Cth) be dismissed. 2. The respondent's decision dated 6 April 2020 on the applicant's objection be set aside pursuant to s 16(1)(a) of the Administrative Decisions (Judicial Review) Act 1977 (Cth). 3. The matter be referred back to the respondent for further consideration and determination according to law pursuant to s 16(1)(b) of the Administrative Decisions (Judicial Review) Act 1977 (Cth). 4. Should the applicant seek its costs, written submissions (not exceeding 5 pages) should be filed within 5 days of the date of this order. 5. The respondent is to file any responsive submissions on costs (not exceeding 5 pages) within 5 days of the applicant's compliance with order 4. 6. Any question of costs be determined on the papers. 3 Although the Society succeeded in the Review, I did not grant all of the relief sought by the Society. Specifically, the Society sought an order setting aside the Revocation in addition to the Objection Decision. I declined this additional relief for the reasons given (at [110]-[113]) in Buddhist Society (No 2). When judgment was handed down, the Society made an oral application for an order that the Revocation be set aside which I did not grant, whilst granting leave to the Society to seek any additional relief together with its opportunity to file written submissions as to costs. 4 Having now had the benefit of considering the reasons for judgment in Buddhist Society (No 2), the Society seeks to vary order 3 of the decision as follows: The matter be referred back to the [Commissioner] for further consideration and determination according to law and based on the same information on which the Objection Decision was originally made pursuant to s 16(1)(b) of the [ADJR Act]. (Further Direction, underlining indicates proposed amendment.) 5 In addition to seeking the Further Direction, the Society seeks its costs of the proceeding to be paid by the Commissioner. The Commissioner opposes the making of the Further Direction and considers that he should only pay 50% of the Society's costs to reflect the Commissioner's success in resisting the Appeal alongside the Society's success in the Review, which the Commissioner says were in effect two separate proceedings.

THE FURTHER DIRECTION 6 The Society seeks the Further Direction on the basis of its concern that the Commissioner, in deciding the Objection Decision afresh, will utilise his statutory power under s 14ZYA of the TAA to require the Society to provide further information. 7 The Society contends that the result of s 14ZYA being applied on the further consideration of the Objection would not do justice between the parties and therefore the Further Direction should be given under s 16(1)(d) of the ADJR Act for the following reasons: (a) the approval in the first sentence of [113] in Buddhist Society (No 2) of the Commissioner's first submission referred to in [112] would clearly enable the Commissioner to apply s 14ZYA of the TAA on the further consideration of the Objection, despite the Commissioner not having applied that provision when making the Objection Decision; and it would be unjust to allow the Commissioner to apply s 14ZYA on further consideration of the Objection because it would enable the Commissioner to determine the Objection after further consideration on the basis of different information from what was considered when making the original Objection Decision; (b) if the Further Direction is not given, the Commissioner may utilise s 14ZYA to obtain further information, and to not determine the Objection unless and until the further information is provided. Because the Commissioner required the tax deductible fund to cease operating from 4 October 2019 (the date of the original decision), any delay in the Commissioner making a decision on the further consideration of the Objection will be prejudicial to the Society and therefore would not achieve justice between the parties; and (c) the Commissioner's previous requests to the Society to provide further information in respect of the Revocation and the Objection Decision have been oppressive because of the volume of information requested. The Society expended significant time, resources and effort in responding to those requests. Allowing the Commissioner to make further requests for information for the purpose of further considering the Objection according to law, in circumstances where the Commissioner elected to make the Objection Decision without that further requested information would be an unjust result, which should be avoided by making the Further Direction, pursuant to s 16(1)(d) of ADJR Act. 8 The Society takes issue primarily with the reasoning at [112] and [113] of Buddhist Society (No 2) and submits that the conclusions in [113] are inconsistent with the analysis at [51]. It is said that resolution of this inconsistency is necessary to determining whether the Further Direction should be made. Those paragraphs provide as follows: 51 Independently of its Pt IVC Appeal, the Society has also brought a Review of the Objection Decision under the ADJR Act. The Court's task on the Review differs in important respects from a Pt IVC Appeal, and is here concerned with whether the Objection Decision (not the Revocation) is attended by error of the kinds described in s 5 of the ADJR Act. The inquiry on such a review is therefore limited to a consideration of the record of information that was before the Commissioner. This means that the Society is not confronted with the evidentiary burden imposed on it in the Appeal. … 112 The Commissioner opposes any order that the Revocation be revoked or that the Society's DGR Status be reinstated. The Commissioner says that in making such orders, the Court would, in effect, be substituting its own decision for the Commissioner's and that such a result would not do justice between the parties as required by s 16(1)(d). This is said to be because the Commissioner made the Objection Decision in the face of the Society's refusal to provide further information as requested, such that it should follow that the Revocation was also made on incomplete and limited information. It is also contended that, for the same reasons that the Appeal had to be dismissed for want of evidence, the Court has no evidence before it on which it could base any decision to revoke the Revocation or reinstate the Society's DGR Status. 113 These submissions are, with respect, correct. It would be inappropriate for the Court to direct, under s 16(1)(d) of the ADJR Act, the Commissioner to revoke the Revocation and reinstate the Society's DGR Status. That is principally because the Review was concerned strictly with the identification of legal error in the Objection Decision. There is no basis upon which the Court could go beyond the correction of the legal errors identified in the Objection Decision in the relief that it grants. 9 The Society says that the approval in the first sentence of [113] of the Commissioner's 'second submission' in [112] is inconsistent with the analysis at [51] and that the analysis in [51] supports the making of the Further Direction. It is, with respect, not at all clear how or why this is so. The analysis in [51] was directed to clarifying the important ways in which the Court's task under the Review differed to that under the Appeal; the Society does not appear to have fully appreciated these differences in the way it ran its case and framed its relief. The reasoning at [112]-[113] was similarly directed to explaining why there is no basis for the Court to set aside the Revocation under the Review when the Review is only concerned with the identification of legal error in the Objection Decision (of the kinds described in s 5 of the ADJR Act). That was the primary basis upon which the Society's contention for orders setting aside the Revocation was rejected. The Commissioner's contentions against the order sought by the Society are recorded in [112] and accepted, as a matter of fact, in the first sentence of [113]. 10 As the Commissioner notes, the Society, in effect, seeks an order in the nature of injunctive relief to restrain the Commissioner from requesting any further information from it in the exercise of powers given to him under s 14ZYA of the TAA. It is to be observed that the Commissioner did not exercise this power before making the Objection Decision the first time. Although the Commissioner did request further information, which the Society refused to provide, that request was made on the basis simply that a failure to comply would result in the Commissioner determining the Objection only on the information already provided. That request was not a notice under s 14ZYA. The Society contended on its principal claims that that request was oppressive, however, in the circumstances where its Appeal was dismissed for want of evidence and the Review was confined to the identification of legal error, the question of whether that request was oppressive did not properly arise. The relief granted to the Society in Buddhist Society (No 2) is not in any way premised on a finding of factual error on the part of the Commissioner in the Objection Decision or in the processes adopted in making that decision. 11 I do not consider that there is any valid jurisdictional basis under s 16(1)(d) of the ADJR Act for making the Further Direction sought by the Society. The Society seeks to expand the Court's role into directing the material the Commissioner ought to consider in his reconsideration of the matter by restraining the exercise of a statutory power. This restraint is sought on the basis that the Commissioner might exercise this power (though he did not do so when making the decision the first time) and that such exercise might be oppressive because a similar, albeit non-compulsory, request made previously was contended to be oppressive. These justifications for the Further Direction are both speculative and pre-emptive. 12 The effect of the Society's submission is that the Commissioner's further consideration 'according to law' (at [115] of Buddhist Society (No 2)) is to be limited to consideration of case authority. If the Commissioner is to properly undertake further consideration and make a determination, there should be no fetter upon the ordinary exercise of powers given to him by the legislation which he was able to exercise on his initial consideration of the Objection. Such a fetter would be contrary to the general principle that an administrative decision-maker is required to make his or her decision on the basis of the most current material available to the decision-maker: Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24 per Mason J (at 45); see also Century Metals & Mining NL v Yeomans (1989) 40 FCR 564 per Fisher, Wilcox and Spender JJ (at 600). While this implication can be rebutted by the terms of the statute (see Darling Casino Ltd v NSW Casino Control Authority [1997] HCA 11; (1997) 191 CLR 602 at 624), in this case, the TAA gives express information-gathering powers to the Commissioner when determining a taxation objection. It is not to the point that that power was not exercised in the making of the Objection Decision or that the matter has been remitted on the basis of legal error. There is accordingly no principled basis upon which this Court could pre-emptively limit the statutory powers of the Commissioner in re-making the Objective Decision. 13 For these reasons, I decline to vary the orders made in Buddhist Society (No 2) to include the Further Direction.

COSTS 14 The Society succeeded on the Review, but failed on the Appeal yet it seeks all its costs. Section 43(1) of the Federal Court of Australia Act 1976 (Cth) confers a wide discretion on the Court to order costs. Although the Society was ultimately successful in the proceeding, it failed on one significant aspect and achieved less favourable relief than it had contended for under the Review. Similarly, it raised subsidiary claims of legal unreasonableness (within the Review) and estoppel (within the Appeal) which were both rejected. Thus, the question is whether these mixed aspects of the Society's success warrant a discount to the costs the Commissioner is liable for. The Commissioner contends he should only pay 50% of the Society's costs. 15 In Souter v Condor Developments Pty Ltd [2012] WASCA 227, Newnes JA (with whom Buss and Murphy JJA agreed) relevantly held (at [28]-[30]): 28 First, where a party, although generally successful, has failed on some issue or issues which increased the costs of the action, the court may order the party to pay the costs of those issues: O 66 r 1(3). But that is a power to be exercised with caution and not as a matter of course. While parties should be encouraged to litigate only those matters which are properly and reasonably in issue, parties should not be dissuaded by the risks of an adverse costs order from canvassing all issues which might be material to the proper determination of a case: Keet v Ward [18]. Moreover, any practice of determining costs on the basis of a painstaking analysis of which party won on which issue would simply add to the time, costs and uncertainty of litigation: see Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S) [6]. Such an approach may also fail to do justice in cases where the issues were intertwined or overlapped, or there was only one substantive issue. The exercise of the power to adjust an order for costs by reference to particular issues upon which an otherwise successful party has failed will ordinarily be appropriate only where the party has failed on discrete and severable issues which have added to the costs of the action in a significant and readily discernible way: Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) v Hannell [2007] WASCA 158 (S) [7]. 29 Where the court considers that an order as to costs should reflect the failure of the successful party on some issues in the action, the better approach will often be to award the successful party a proportion of its costs, or to make no order as to costs, rather than attempt to award costs to the respective parties on an issue by issue basis: Phillips Fox (A Firm) v Westgold Resources NL [2000] WASCA 85 [28]. Where a party is awarded only a proportion of its costs, the exercise of discretion involved will inevitably be more a matter of art than science, depending upon matters of impression and evaluation, and mathematical precision will be illusory: Amaca [6]; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261, 272. 30 Secondly, where a plaintiff pleads two or more causes of action but succeeds on only some of those causes of action, the general rule is that the plaintiff is entitled to costs on the causes of action on which it was successful and the defendant is entitled to costs on the causes of action on which it was successful, as if separate actions had been brought: O 66 r 2(a). Again, and for similar reasons, an order of that kind is not to be made as a matter of course. It is necessary for the court to look at the realities of the case and attempt to do substantial justice in the particular circumstances. In some cases, while it might be strictly correct to say there are different causes of action involved, there may have been only one contest in substance. That will often be so where all causes of action arise out of the one course of dealings, the one transaction, or the same facts, in which case there would usually be one order for the general costs of the action, moulded as necessary to ensure that substantial justice is done: Permanent Building Society v Wheeler [No 2] (1993) 10 WAR 569, 574 575; Keet v Ward [24]. (Emphasis in original.) 16 Those principles stated in Souter were cited and approved in Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 5 WAR 388 per Murphy, Mitchell and Pritchard JJA (at [51] and [52]). 17 Similarly, in PKT Technologies Pty Ltd (formerly known as Fairlight.au Pty Ltd) v Peter Vogel Instruments Pty Ltd (No 2) [2020] FCAFC 46, the Full Court (Besanko, Banks-Smith and Stewart JJ) said (at [14]-15]): 14 …The fundamental purpose of the discretion is to compensate the successful party, not to punish the unsuccessful party. In general, a successful party will obtain an order for costs in its favour. However, a successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. If the apportionment of costs is appropriate, the object is not mathematical precision but a result that best reflects the interests of justice in the overall circumstances of the case. See EMI Songs Australia Pty Ltd v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 at [9]. 15 However, the mere fact that a court does not accept all of a successful party's arguments does not make it appropriate to deal with costs on an issue by issue basis: The State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 at [8]. A court will be reluctant to adopt an approach of apportioning costs between different issues depending on success or failure on those issues where it is likely to be difficult, if not impossible, to allocate items of costs between the different issues. See Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (No 2) [2015] FCAFC 155 at [16] citing Cretazzo v Lombardi (1975) 13 SASR 4 at 16; and Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 5) [2015] FCA 1310 at [15]. (see also Stefanovski v Digital Central Australia (Assets) Pty Ltd (No 2) [2018] FCAFC 113 (at [5]); N.V. Sumatra Tobacco Trading Company v British American Tobacco Services Limited [2011] FCA 1295 at [17]; and Monie v Commonwealth (No 2) [2008] NSWCA 15 at [63]-[66].) 18 The Society succeeded in establishing legal error in the Objection Decision under the Review. The same error was relied on in the Appeal, but the Appeal was dismissed because there was no relevant evidence in support of the Appeal: see Buddhist Society (No 2) (at [18]-[50]). The Society's contention that s 14ZZO(b)(ii) of the TAA did not impose a burden to prove any of the facts contained in the documents considered by the Commissioner was rejected: Buddhist Society (No 2) (at [23], [49] and [50]). 19 The issue in respect of the correct construction of s 14ZZO(b)(ii) of the TAA was raised by the Commissioner as a threshold issue against the Society by contending that it had failed to discharge its evidentiary onus: Buddhist Society (No 2) (at [19]). The Society says it was unreasonable for the Commissioner to have raised this argument in the Appeal because the Commissioner was never in a position to win the substantive issue in the litigation because the construction of s 14ZZO(b)(ii) was never going to be an answer to the Review for the reasons expressed at [51] in Buddhist Society (No 2), notwithstanding a successful outcome in respect of the s 14ZZO(b)(ii) issue in the Appeal. The Society says that the substantive and foundational issue in both the Appeal and the Review was whether TR2013/2 Income Tax: school or college Building Funds was inconsistent with Australian law. The Society succeeded on this central issue because the Commissioner's contention as to the ordinary meaning of 'school' as asserted in TR2013/2 was rejected: Buddhist Society (No 2) (at [100]). Had the Society also won the threshold issue under s 14ZZO(b)(ii), it would have succeeded in the Appeal. 20 The Society contends that the only conceivable basis that could justify the Commissioner's decision to raise the threshold issue concerning the construction of s 14ZZO(b)(ii) is that this litigation provided an opportunity to the Commissioner to present a 'test argument' concerning the construction of s 14ZZO(b)(ii) that would have precedential value to the Commissioner for the future conduct of the Commonwealth's business, in circumstances where there was no specific authority on the construction of s 14ZZO(b)(ii). However, because raising this issue did nothing to improve the Commissioner's defence of TR2013/2, and therefore had nothing to do with the substantive issue in the litigation, the Society contends it was unnecessary and unreasonable for the Commissioner to raise the threshold issue in this matter, and to thus put the Society to the expense of addressing it. Save and except for the threshold issue concerning the construction of s 14ZZO(b)(ii) raised by the Commissioner in the Appeal, the Society says there was a significant overlapping and intertwining of issues between the Appeal and the Review, all of which concerned whether TR2013/2 was inconsistent with Australian law. 21 Accordingly, the Society says it is, in reality, the successful party in the entire litigation and should be awarded all of its costs of the proceeding, to be taxed. Alternatively, there should be a small percentage reduction in the Society's costs of the proceedings, such as that the Society should be awarded 90% or 95% of its costs of the proceedings to be taxed. 22 The Society's submission that it was unreasonable for the Commissioner to raise the 'threshold' issue concerning s 14ZZO(b)(ii) of the TAA cannot, with respect, be accepted. The issue concerning the correct construction of s 14ZZO(b)(ii) of the TAA was a substantive one: whether the Society had discharged the evidentiary onus that it bore by operation of that section: Buddhist Society (No 2) (at 18]). I am not persuaded that there was any unreasonableness in the Commissioner's challenge to the Society's purported reliance in the Appeal on material which did not constitute evidence. It is not to the point that the substantive issue under both the Review and the Appeal was whether the Commissioner's interpretation of the meaning of 'school or college', as expressed in TR2013/2 was erroneous. Again, the Society's argument appears to misunderstand critical differences in the nature of the Court's task under the Review and the Appeal, as informed by the specific statutory contexts in which each permits this Court to review decisions of the Commissioner. These differences extend to the nature of the relief the Court may grant such that success on the substantive issue does not necessarily lead to equivalent outcomes. In these circumstances, it was entirely appropriate for the Commissioner to resist the Appeal in the manner he did. 23 The Commissioner submits that it is appropriate that each party's respective success be reflected by an order that the Commissioner pay 50% of the Society's costs of the proceeding as a whole: see Clough Ltd v Federal Commissioner of Taxation (No 2) [2021] FCA 267 per Colvin J (at [6]); Phonographic Performance Company of Australia Ltd v Copyright Tribunal of Australia [2019] FCAFC 192 per Besanko, Middleton and Burley JJ (at [6]-[7]) and Stefanovski (at [5]). 24 As noted, the Society sought, in the one proceeding, to invoke two separate sources of statutory jurisdiction: Buddhist Society (No 2) (at [4]). Although such a course was permitted, the fact remains that the Appeal and the Review were, in effect, separate substantive proceedings. 25 It is clear that the Society wholly failed to succeed in relation to the Appeal on the distinct ground of its failure to adduce the necessary evidence to discharge its burden. Additionally, the Appeal comprehended the estoppel issue and the Review comprehended the unreasonableness issue. The Society was unsuccessful on both those issues. Otherwise, it is correct that the substantive questions which arose on the Appeal and the Review overlapped and were intertwined.

CONCLUSION 26 There are many cases in which a successful party has failed on some points yet is still awarded its costs of the proceedings. Costs will normally follow the event. However in this instance in all reality there were two separate proceedings which would have given rise to different outcomes had they both succeeded despite the same substantive issue being at play in both. The Society succeeded on one only of those proceedings. Nonetheless it was required to issue proceedings to vindicate its position and has succeeded in doing so although it failed in one significant aspect of the proceeding. The award of costs should reflect the Society's success in the proceeding and must not appear to punish the Society for pressing two alternative avenues for relief which were not fanciful. I do not consider that an award of only 50% of its costs would adequately reflect this success but I also consider this is a clear case where there should be some discount for its failure on a major limb of the proceeding (as well its lack of success on some more minor issues such as unreasonableness and estoppel). In my view an appropriate weighting to take into account all matters is that the Society be awarded two-thirds of its costs, to be taxed or assessed if not agreed. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McKerracher.

Taxation Administration Act 1953(Cth)ss 14ZYA, 14ZZO(b)(ii)

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