Transtar Linehaul Pty Ltd v Chief Commissioner of State Revenue

Plaintiff's submissions

1. The plaintiff contends that all of its costs of the proceeding, up to and including 5 November 2020, were costs that were thrown away by reason of amendments made by the defendant to his Appeal Statement on that date.
2. It is said (and this does not appear to be disputed) that the effect of those amendments was that, for the first time, the defendant then relied upon s 71(2) of the Payroll Tax Act 2007 (NSW) (Payroll Tax Act) as a ground for "grouping" the plaintiff with Kagua, so as to render the plaintiff jointly and severally liable with Kagua, pursuant to s 81 of the Payroll Tax Act and s 45 of the Taxation Administration Act, for Kagua's payroll tax liabilities for the periods from 1 July 2012 to 30 June 2017. It is said that it was following those amendments that the plaintiff promptly conceded the matter (and the consent orders dismissing the proceeding were agreed).
3. The plaintiff invokes the usual rule that an amending party should pay the costs thrown away by reason of the amendments but here, in effect, says those costs thrown away extend to the whole of the costs of the proceeding to that time.
4. The plaintiff says that the simple factual proposition upon which the s 71(2) grouping ground is based (the critical factual matter on which it says the "dispositive" grouping ground depended) - namely, that one or more employees of Kagua was or were employed solely or mainly to perform duties for or in connection with the plaintiff's business - was known to the defendant before the commencement of the proceeding. (This is the factual issue now in contention and to which the 19 February 2021 and 26 February 2021 affidavits referred to above relate.) The plaintiff says that, had this ground earlier been relied upon by the defendant, the plaintiff would not have commenced or continued the proceeding; and the plaintiff argues that it follows that the defendant should pay the plaintiff's costs of the proceeding to 5 November 2020. Complaint is made that there has been no explanation from the defendant as to why it did not rely on the so-called dispositive ground earlier that November 2020.

Basis for the assessments

1. The plaintiff says that, at all times prior to 5 November 2020, the defendant relied solely on other grounds for grouping under ss 72 and 74 of the Payroll Tax Act, as follows.
2. The plaintiff points to the notice of joint and several liability issued under s 45(2A) of the Taxation Administration Act on 4 February 2019, in which the defendant relied on ss 72(1), 72(2)(c)(i), 72(2)(d) and 72(2)(3) of the Payroll Tax Act for the contention that Kagua and the plaintiff were grouped (based on the allegation that the plaintiff's sole director and shareholder in the relevant period, the now deceased Mr Ronald Wesley Searle (Ronald), was a shadow director of Kagua).
3. The plaintiff says that the defendant maintained that view in the decision dated 31 October 2019, disallowing the plaintiff's objections to the assessments. In addition, it is said that the defendant relied on an alternative ground under ss 72(2)(g) and 72(6) of the Payroll Tax Act to the effect that Kagua and the plaintiff were grouped because Kagua allegedly carried on its business as trustee of a discretionary trust of which Ronald was a beneficiary. It is said that both grounds under s 72 were pressed by the defendant in his Appeal Statement filed on 24 March 2020.
4. The plaintiff says that at all times it has disputed, and continues to dispute, both grounds of grouping; noting that the plaintiff served affidavit evidence in the proceeding in July 2020 disputing both grounds.
5. The plaintiff points to the fact that, in the defendant's Appeal Statement filed on 24 March 2020, the defendant identified a further alternative basis for grouping for only part of the relevant period (1 July 2012 to 9 February 2016), based on s 74 of the Payroll Tax Act, by reason of Ronald's control over both the plaintiff and its landlord,Edgely Pty Ltd (Edgely), and the latter's grouping with Kagua. It is said that the identification of this further alternative ground resulted in the plaintiff offering to pay to the defendant a sum of $107,059.93 (and subsequently paying $110,000, that being the amount the plaintiff calculated as referable to this ground).
6. As noted above, it was in the defendant's Amended Appeal Statement filed on 5 November 2020 that the defendant alleged (at [30]-[31]) for the first time that, by reason of s 71(2) of the Payroll Tax Act, Kagua and the plaintiff constituted a group because Kagua's employed truck drivers were employed solely or mainly to perform duties for or in connection with one or more businesses carried on by the plaintiff.
7. The plaintiff, in its Amended Appeal Statement filed on 11 November 2020 (at [40A]), conceded that s 71(2) of the Payroll Tax Act was satisfied for that reason and, accordingly, that Kagua and the plaintiff constituted a group for the entire period in issue in the proceedings, namely from 1 July 2012 to 30 June 2017. The plaintiff says that it continued to dispute the "shadow director" and "discretionary trust" grounds of grouping relied upon by the defendant and that it was solely by reference to its concession as to the s 71(2) ground that the plaintiff consented to the order made on 15 December 2020 dismissing the proceedings.

Submission that all of the plaintiff's costs up to 5 November 2020 were wasted by reason of the defendant's "belated" reliance upon s 71(2) of the Payroll Tax Act

1. As adverted to above, the plaintiff says that the factual premise for the defendant's reliance on s 71(2) was known to the defendant prior to the commencement of the proceeding on 23 December 2019 (and indeed prior to the payroll tax assessments notified by the defendant to the plaintiff under s 45(2A) of the Taxation Administration Act on 4 February 2019).
2. In this regard, the plaintiff points to the report dated 12 September 2017 by the liquidator of Kagua to creditors, in which the liquidator informed creditors (including the defendant) that Kagua's business was the provision of labour hire transport services; and the plaintiff says that, by letter dated 19 December 2018, in response to questions posed by the defendant during the course of his investigations, the liquidator of Kagua informed the defendant that Kagua "performed labour hire services for [the plaintiff]"; that Kagua invoiced the plaintiff for those services; and that the plaintiff was Kagua's "sole customer".
3. In reply submissions, the plaintiff made reference to Kagua's 2013 and 2014 instalment activity statements (which were said to have been produced to the defendant and contained in the defendant's audit file), which identified and listed by name the persons engaged in Kagua's labour services business as being its "employees". This is the submission, made by reference to Mr Lahood's 11 February 2021 affidavit at [13D] that precipitated the flurry of further evidence referred to earlier; and is the subject of contention now. Relevantly, in this regard, in his 19 February 2021 affidavit, Mr Lahood made clear that he had never seen the defendant's audit file but that he believed that an affidavit sworn 20 October 2020 by Ms Pardey contained some of the materials sourced from the audit file; but he maintained his view that the defendant was aware prior to the commencement of the proceeding that Kagua provided its employees as labour hire services to the plaintiff.
4. Apart from the now vexed issue as to what was contained in the defendant's audit files, in the plaintiff's submissions it was also said that, at an early stage of the proceeding (and before the defendant had been required to incur any substantial costs), the plaintiff itself notified the defendant of the critical factual proposition upon which the s 71(2) ground depends. Reference was made in this context to the plaintiff's Appeal Statement filed on 10 February 2020 (at [13], [24]), which contained a statement that Kagua conducted a labour hire business which provided labour to the plaintiff's transport business and that the plaintiff was Kagua's "largest, or sole, labour hire customer". It is further noted that the defendant's Appeal Statement filed on 24 March 2020 (at [30]) stated that "Kagua carried on business as a labour hire firm, supplying persons to Transtar for the purpose of its business".

Affidavit evidence on present application

1. The plaintiff says that the affidavit evidence filed on the present application establishes that, had the defendant's determination dated 4 February 2019 raised s 71(2) of the Payroll Tax Act, the plaintiff would not have commenced the proceeding and, instead, would have paid the whole amount claimed. It is said that this is consistent with the objective fact that, immediately after the defendant's reliance upon s 71(2), the plaintiff conceded the proceeding. The plaintiff further places significance on the evidence of the plaintiff's solicitor that, having regard to the terms of s 71(2), had the defendant's determination dated 4 February 2019 relied on this ground of grouping, the solicitor would not have been prepared to act for the plaintiff (as in the solicitor's opinion the proceeding would have had no reasonable prospects of success).
2. As adverted to above, complaint is made that the defendant has not adduced any affidavit evidence explaining the reasons for his "late" reliance upon the dispositive ground in s 71(2). It is submitted that the defendant failed to rely upon s 71(2) at any time until 5 November 2020, despite having every opportunity so to do.

Plaintiff's overall submission as to costs

1. The plaintiff invokes the overriding purpose and objects of case management and dictates of justice identified in ss 56-58 of the Civil Procedure Act 2005 (NSW). As adverted to above, it is submitted that the defendant, as the amending party, should pay the costs thrown away by the plaintiff as a result of the amendments. The plaintiff argues that those costs comprise the whole of the plaintiff's costs of the proceeding up to 5 November 2020. It is said that no costs of any substance were incurred by the defendant after 5 November 2020, other than costs directed to the resolution of the present costs argument.
2. To the extent necessary, it is submitted that these unusual circumstances provide sufficient reason to depart from the general rule in r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) that costs should follow the event (i.e., the event being the consent dismissal of the proceeding on 15 December 2020).
3. The plaintiff also contends that (if its submissions are accepted over the defendant's opposition) the defendant should also pay the plaintiff's costs of the present costs argument. It is said that the defendant failed to accept detailed without prejudice offers made by the plaintiff on 24 November 2020 and 9 December 2020, respectively, by which the plaintiff offered to pay $25,000 or $30,000, respectively, towards the defendant's costs of the proceeding. In the circumstances, it is submitted that the defendant's failure to accept those offers was unreasonable and justifies an award of indemnity costs against the defendant in respect of the costs of the present costs argument.
4. Thus, the plaintiff submits that the appropriate orders are that the defendant should pay the plaintiff's costs of the proceedings to 5 November 2020 and that the defendant should also pay the plaintiff's costs of the present costs application (on an indemnity basis or, alternatively, on the ordinary basis).

Defendant's submissions

1. The defendant points to the general rule applicable on the dismissal of proceedings as set out in r 42.20(1) of the UCPR, namely that, if an order is made for the dismissal of proceedings then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceeding to the extent to which the proceeding has been dismissed. The defendant says that this provision should be read in the context of the general principle that costs follow the event (UCPR, r 42.1), the event here being the dismissal of the plaintiff's summons.
2. The defendant says that the relevant event is not the amendment of his Appeal Statement (for which leave was given without costs being awarded). Further, the defendant says that the cause of that event was the plaintiff's failure truly and fully to disclose, prior to 4 February 2019, in accordance with its statutory obligations under s 10(1) of the Taxation Administration Act, that the employees of Kagua performed services for the plaintiff.
3. The defendant submits that the plaintiff must pay his costs of the proceeding unless there is some proper justification, sound positive ground, or a good reason, for departing from the general rule. (In reply submissions the plaintiff argues that the "proper justification, sound positive ground or good reason" for departing from the general rule in rr 42.1 and 42.20(1) of the UCPR is the late change in the defendant's case on 5 November 2020, reiterating its contention that the factual proposition on which reliance was placed by the defendant for the Common Employee Grouping under s 71(2) of the Payroll Tax Act was undisputed and was known to the defendant prior to the commencement of the proceeding.)
4. The defendant says that, there having been no hearing of the allegations made by the plaintiff, it is not appropriate for there to be an hypothetical action between the parties to determine the question of costs, particularly where a trial on the merits would have involved complex factual matters where credit could have been an issue. The defendant says that, had the matter gone to trial, assessment as to the correctness of the assessments would have involved a determination inter alia as to whether the plaintiff should have been grouped with Kagua. (The plaintiff in response argues that it does not here invite the embarkation upon any hypothetical determination of any of the matters outlined in the defendant's submissions and says that acceptance of the plaintiff's costs argument does not require this.)
5. It is noted by the defendant that four alternative factual bases for grouping the plaintiff and Kagua were relied on by the defendant in the proceeding (all said to be based on the uncontested fact that Ronald had a controlling interest in the plaintiff), those being the grounds referred to above. The defendant accepts that the first two grounds formed the basis for the payroll tax assessments issued on 4 February 2019; and that the last two grounds did not (being raised in the defendant's Amended Appeal Statement filed on 5 November 2020).
6. The defendant's position (contrary to the assertion by the plaintiff) is that the defendant was unaware, until around 29 July 2020 when the plaintiff served the affidavits of Mr Lahood and Tishan David (a former Kagua director), that the labour hire business conducted by Kagua involved the supply of Kagua's employees to the plaintiff (a matter both parties accept is critical to the common employee grouping ground under s 71(2) of the Payroll Tax Act). It is said that only at that time was there full disclosure of the facts in respect of that ground.
7. Further, it is said that only after 5 November 2020 were Kagua's business records provided (pursuant to a subpoena prepared by the defendant and served upon Kagua's liquidator) to substantiate the common employee grouping ground. The defendant says that it was upon the service and production of this material, during the course of the proceeding, that he became fully aware of these matters and amended his Appeal Statement (which he says led to the plaintiff's "capitulation"). (See also the matters raised in Ms Pardey's 26 February affidavit in this regard.)
8. It is submitted by the defendant that the plaintiff's "capitulation" does not render the other three grounds incorrect, nor has it been conceded by the defendant that these three alternative bases do not form a proper basis for grouping Kagua with the plaintiff. (The plaintiff in response says that it is no part of its costs argument that the consent dismissal of the proceedings renders incorrect the first three grounds on which the defendant relied for the assessments.)
9. The defendant says that, by reason of the plaintiff's "capitulation", the merits of the defendant's payroll tax assessments (whether based on the first two grounds or the third ground, cannot now be determined and that the plaintiff has foregone the opportunity to contest these matters at trial by consenting to the dismissal of the summons. It is said that the controversy as to those matters (constituted in the summons) was ended by consent orders made on 15 December 2020.
10. The defendant says that determination of the merits of those matters would require the cross-examination of Tishan David and James Lahood on matters including the following: the whereabouts of the RW Searle Family Trust Deed (the Trust) and other trust documentation relied upon by the plaintiff; the provenance of the alleged resolution dated 7 December 2015 purportedly removing Kagua as trustee of the Trust; whether Kagua carried on its business as trustee; whether Tishan David was a director of Kagua within the relevant period; whether Ronald acted as a director of Kagua within the relevant period; and whether Tishan David acted in accordance with Ronald instructions or wishes in the relevant period (issues which cannot now be hypothetically determined). It is submitted that to determine these matters now (under the guise of a costs determination) would be to deny the defendant a reasonable opportunity to appear and to present his case on these matters (including by cross-examination of the plaintiff's witnesses).
11. It is submitted that, as statutory provision is made for assessments to be affirmed in review proceedings on grounds that are alternative to those expressed in the objection decision (Taxation Administration Act, s 100(2)), it cannot be said that the defendant unreasonably relied upon evidence served by the plaintiff and returned by the liquidator of Kagua in the proceedings to amend his Appeal Statement and prove the common employee grouping ground. The defendant says that the amendments did not cause costs to be wasted; rather that they caused the plaintiff to capitulate and therefore save costs.
12. The defendant thus maintains that the first two grounds, and the evidence in support of them, remained in contest until the plaintiff's "capitulation"; that the amendments were not unreasonably made; and, consequently, that there is no good reason as to why the usual rule as to costs should not apply.
13. Further, it is submitted that the circumstances of the plaintiff's "capitulation" support the making of an order that the plaintiff pay the defendant's costs in accordance with r 42.20(1) of the UCPR. In this regard, the defendant says that, by its Amended Appeal Statement filed on 11 November 2020, the plaintiff conceded for the first time that: Kagua's employees were employed in the relevant years to perform duties for or in connection with one or more businesses carried on by the plaintiff (what the defendant here refers to as the conceded fact) and that it was consequently liable for payroll tax assessed by the assessments the subject of the summons by reason of the operation of s 71(2) of the Payroll Tax Act, the effect of which was to group Kagua with the plaintiff.
14. The defendant says that the plaintiff has not explained why it made the above concessions on 11 November 2020 and not at or before the time of the assessments dated 4 February 2019. It is said that each of the plaintiff's witnesses (James Lahood and Tishan David) was aware of the "conceded fact" well before the assessments. It is noted that James Lahood was a director of the plaintiff and had been involved in the business of the plaintiff and Kagua since 2001, as solicitor, and since 2009, as consultant; and that Tishan David was appointed as director of Kagua on 18 August 2015. It is noted that both concede that they were aware of the labour hire arrangement between the plaintiff and Kagua and that Kagua's employees were used to perform services for the plaintiff. (Pausing here, the plaintiff cavils with the description of the factual premise of the common employee grouping ground as a "conceded fact", saying that that fact was never disputed and that the plaintiff never understood it to be disputed. Again, it is said that it was a fact known to the defendant before the commencement of the proceedings.)
15. The defendant says that the plaintiff was obliged by s 10(1) of the Taxation Administration Act fully and truly to disclose, prior to or at assessment on 4 February 2019, all the facts and circumstances bearing on its liability to payroll tax. It is noted that ss 121(1) and 121A of the Taxation Administration Act constitute a contravention of s 10(1) as an executive liability offence and corporate offence giving rise to pecuniary penalties.
16. The defendant says that, by 18 separate s 72 notices issued during the investigation, he sought to obtain information from the plaintiff, Kagua and other group companies and service providers. In that regard, the defendant refers to the following chronology of events.
17. By notices issued pursuant to s 72 of the Taxation Administration Act, the Office of State Revenue (OSR) on 1 December 2015 sought information from the major banks as to Kagua's bank account statements and other information. A formal investigation was commenced by the OSR on 8 June 2017, and it was discovered, from Kagua's invoices and the plaintiff's ledgers, that Kagua invoiced the plaintiff for labour hire during the relevant period but that those records did not disclose that the labour provided by Kagua to the plaintiff was that of Kagua's employees. On 13 June 2017, Kagua was served with a notice of investigation and an employer's questionnaire. It is said that there was no response to questions relevant to common employee grouping ground (questions 28-31) from Kagua, whose sole director at the time was Tishan David and whose bookkeeper was identified as a Gerard Lahood. By notice dated 15 June 2017, issued pursuant to s 72 of the Taxation Administration Act, Grosvenor Business Advisers Pty Ltd (Grosvenor Advisers), the accounting service provider to the Plaintiff and Kagua, was required to provide inter alia a Trial Balance for the period 1 July 2016 to 31 May 2017 to the defendant. By s 72(8) of the Taxation Administration Act compliance with this notice was mandatory. It is noted that ss 121(1) and 121A of the Taxation Administration Act constitute a contravention of s 72(8) as an executive liability offence and corporate offence, giving rise to pecuniary penalties.
18. On 3 July 2017, Kagua commenced a voluntary winding up. Kagua did not respond to the questionnaire.
19. By further notices dated 18 July 2017, issued pursuant to s 72 of the Taxation Administration Act, Grosvenor Advisers was required to provide, inter alia, payroll activity summaries for Kagua to the defendant and lists of records held for and provided by Kagua. By s 72(8) of the Taxation Administration Act compliance with these notices was made mandatory. Again, it is noted that ss 121(1) and 121A of the Taxation Administration Act constitute a contravention of s 72(8) as an executive liability offence and corporate offence giving rise to pecuniary penalties.
20. By letter dated 28 July 2017 Grosvenor Advisers advised that Kagua provided MYOB records to assist it to prepare financial statements and that Gerard Lahood was Kagua's bookkeeper. The defendant says that no payroll activity summaries or other records or lists of records were provided; and that the material produced under subpoena by the liquidator (as part of this proceeding) was not referred to nor was it provided.
21. The defendant says that, at no time during the investigation, did James Lahood or Tishan David disclose the "conceded fact", notwithstanding their awareness of it as revealed in their subsequent affidavits and the business records produced under subpoena. It is said that there is no satisfactory explanation from the plaintiff, in particular by its director, James Lahood, as to why it did not disclose the "conceded fact" prior to 29 July 2020 and prior to assessment in accordance with its obligations under s 10(1) of the Taxation Administration Act. It is said that these matters were uniquely in the knowledge of Mr Lahood who was the director of the plaintiff with a 20-year history with the group of companies.
22. In the circumstances, the defendant argues that there is very good reason for the plaintiff to be ordered to pay his costs. It is contended that the withholding of material as to the common employee grouping, including the so-called conceded fact, and the plaintiff's apparent failure fully and properly to disclose that material prior to assessment prima facie constitutes a contravention of its obligations under s 10(1) of the Taxation Administration Act.
23. In response to the assertions of non-disclosure or incomplete disclosure the plaintiff says that it is neither necessary nor appropriate, in dealing with the present argument as to costs, for any view to be expressed, even on a prima facie basis, in respect of the allegation (which the plaintiff says is serious and unfounded) that the plaintiff breached its obligation of disclosure in s 10(1) of the Taxation Administration Act. It is contended that there was no such breach by the plaintiff (reference being made to Mr Lahood's affidavit sworn 11 February 2021 at 10- (b), [12]-[21]). In any event, it is submitted that the disclosure obligation in s 10(1) attaches to "all the facts and circumstances affecting the tax liability under the relevant taxation law". It is said that, until the defendant's amendments on 5 November 2020, there was "not the slightest suggestion" by the defendant (and nothing to put the plaintiff on notice) that the "undisputed fact" that Kagua's employees provided labour to the plaintiff was relevant in any way to the plaintiff's tax liability; and that it was not until the common employee grouping ground was relied upon by the defendant for the first time on 5 November 2020 that the plaintiff was aware that this was an available ground for grouping. It is noted that the undisputed fact was freely disclosed in the plaintiff's affidavits served in the substantive proceeding and that no attempt was made at any time to conceal that fact (referring to the plaintiff's submissions at [10]). The plaintiff says that, contrary to the defendant's submissions at [3], the "cause" of the consent dismissal was not any failure of disclosure on the part of the plaintiff; reiterating its position that the relevant cause was the defendant's unexplained failure to rely upon the common employee grouping ground at any time before 5 November 2020.
24. The plaintiff says that it does not suggest that the defendant acted unreasonably in relying upon the common employee grouping ground or that the amendments per se were unreasonably made; rather, that what was unreasonable was the timing of the amendments and the defendant's unexplained failure to rely upon this ground much sooner. The plaintiff maintains its position that the defendant's "late" amendment did not "save" costs; rather, it is said that, it wasted the entirety of the plaintiff's legal expenditure up to 5 November 2020 (on the basis that the plaintiff would not have commenced the proceedings if the common employee grouping ground had been relied upon by the defendant, because its factual substratum was undisputed) (referring to its earlier submissions at [11]).

Determination

1. Insofar as the plaintiff has invoked a special rule applicable to the responsibility for costs thrown away by the amendment of pleadings, this seems to me to be misconceived. That rule (generally invoked where the amendment to the pleading is one for which leave is required) recognises that costs incurred by reference to a claim as initially pleaded may have been thrown away as a result of the amendment and that further costs will necessarily be incurred by reason of the need to prepare and file a response to the amended pleading (see Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137 at 154). It is sometimes colloquially referred to as the "price" of the grant of leave for an amendment for which leave might not otherwise have been granted.
2. It is not apt, in my opinion, to cover the situation here at hand where, after the amendment of the defendant's Appeal Statement, the plaintiff has (on its own submissions) conceded in effect that its application for review of the relevant payroll tax assessments would inevitably be bound to fail; nor would it cover the situation where a party in the plaintiff's position chose for some other reason (say in light of the anticipated additional cost of addressing an amended case) not to pursue its application after such an amendment had been made. The alternative grounds (to which the plaintiff's costs of the proceeding up to the time of amendment would have related) were not abandoned or waived by the defendant and may well have succeeded (though the plaintiff was apparently confident they would not).
3. The difficulty I have with the plaintiff's application for costs is not simply that there has been a dismissal of the proceeding (such that the general rule is that unless otherwise ordered the plaintiff must pay the defendant's costs), and that this would ordinarily require good reason for such a departure to be shown (see, for example Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 per Bryson JA with whom McColl JA agreed at [54] (Australiawide)); but that it is well-recognised that it is not appropriate to embark on a hearing of the merits in order to determine the question of costs on the discontinuance or dismissal of the proceedings (see, in this regard, Australiawide at [4]; Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622 at 624; [1997] HCA 6 (Lai Qin). Where a matter has not been heard on the merits, ordinarily for there to be a costs order in favour of one party it is necessary to show that the other party's conduct has been "so" unreasonable as to warrant such an order (see Lai Qin at 624-625).
4. Although the plaintiff does not accept that the present situation is within Lai Qin "territory", so to speak, and maintains that it is not necessary for it to show that there has been unreasonable conduct in the Lai Qin sense, I have reached the opposite view. Indeed, I remain of the view expressed in Freelancer International Pty Ltd v O'Kane [2019] NSWSC 159 (at [70]), that it is difficult to see why the same kind of considerations would not be relevant when deciding whether to depart from the "starting position" in rr 42.19 and 42.20 of the UCPR (the relevant provision here being r 42.20 as already noted).
5. I consider it relevant again to note the observations in Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 at [30], of Payne JA, with whom Meagher JA agreed, that: If both parties to a proceeding which has been settled without a hearing on the merits have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. and, in the same case (at [8]-[9]), of Basten JA, who said: Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon. Thirdly, if contrary to the views set out above, it was appropriate to investigate whether the applicants or the respondent had been unreasonable, either in their conduct prior to the proceedings, or in their conduct of the proceedings, the approach adopted was untenable. Thus, regard was had to the motives of the respondent in commencing proceedings, but no account was taken of the motives of the applicants in capitulating. Further, once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party's case without permitting the other party an opportunity to challenge the opposing party's witnesses.
6. Those observations are in my opinion more than apt in the circumstances of the present case. The exercise of determining whether the conduct of the defendant has been "so" unreasonable, by reference to the complained of delay in the timing of the defendant's reliance on the common employee grouping ground, would in my opinion inevitably require a factual enquiry (whether that enquiry be into matters of the kind to which the defendant has pointed in his submissions - as to the merits of the application per se; or as to the plaintiff's assertions as to what was known or ought to have been known at the time that the initial decision and subsequent iterations of the Appeal Statements were made). That is an exercise that it is quite inappropriate here to entertain. The plaintiff has submitted that all that would here be required is the resolution on the documents of a narrow disputed question of fact. I do not accept that this is necessarily the case - as is illustrated by the fact that the central issue on which the plaintiff bases its costs application has already given rise to additional affidavit evidence and dispute as to what was contained in the tax audit files (and, arguably, as to what should have been drawn from material that emerged in the course of the tax investigation).
7. It is not necessary to frame the plaintiff's conduct as a "capitulation" or to speak in terms of "conceded fact" (though I make no criticism of what seems to me in essence to be little more than a label attached in the defendant's submissions as to the plaintiff's conduct in this regard). The fact is that, if the enquiry as to costs would potentially require an hypothetical trial of the issues the subject of the dispute, then it is inappropriate to embark upon such an exercise for the reasons set out in the above authorities. The emphasis placed by the plaintiff on the so-called "dispositive" ground seems to me to highlight the fact that there were other grounds relied upon by the defendant, the merits of which have not been tested, and assumes that the Commissioner would not have succeeded on those grounds. That cannot here be determined. I am not persuaded that the defendant's conduct in filing an Amended Appeal Statement (after having sought and obtained leave to do so) which raised a further ground on which the assessments were said to be correct was so unreasonable as to warrant the making of a costs order against him.
8. Having said that, I should note that I also do not consider it appropriate to enter into debate as to whether there is any potential liability arising out of the matters asserted in the defendant's submissions of non-disclosure and the like. The allegation of breaches of the relevant statutory provisions (amounting to penalty offences) is indeed a serious allegation and one that would need to be proved to the Briginshaw standard (Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34). I could not possibly form a concluded view on those allegations based on the evidence before me - nor would it be appropriate to make any further comment in relation thereto.
9. For the reasons above, I have concluded that the appropriate order is that the plaintiff pay the defendant's costs of the proceedings, on the basis of the general rule under r 42.20 of the UCPR (there being no good reason in my opinion to order otherwise). In those circumstances, the claim for indemnity costs of the costs application itself cannot be maintained. It is sufficient to order as follows, noting that this will finally bring to an end the proceeding: 1. Order that the plaintiff pay the defendant's costs of the proceeding on the ordinary basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 March 2021