HEARING DATE: (Written submissions) 9, 10, 29 February, 8 March 2012

Procedure - Costs - Interlocutory proceedings - Costs in the cause - Rule of Court that costs in the cause of the party in whose favour application determined - Power to "otherwise order" - Discretion unfettered - Costs of plaintiff's successful summary judgment application and defendant's unsuccessful application to stay execution - Appropriate orders where summary judgment set aside on appeal.

Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries [1992] FCA 291; (1992) 36 FCR 297; Spotwire Pty Ltd v Visa International Service Association (No 2) [2004] FCA 571; S, D J v Channel Seven Adelaide Pty Ltd [2007] SASC 80; (2007) 97 SASR 118, applied.

Procedure - Costs - Recovery of costs - Rule of Court that costs in the cause of the party in whose favour application determined - Power to "otherwise order" - Operation of the general rule delaying payment until the end of the principal proceedings - Where costs awarded to a party otherwise than in accordance with rule - Whether party should be entitled to immediate taxation and payment - Relevant factors.

Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432; (2002) 55 NSWLR 1, Alstom Power Ltd v Yokogawa Australia Pty Ltd (No 2) [2006] SASC 87, applied.

Judgment Number: [2012] TASSC 11

CAROL SUSAN WOODS v DEPUTY COMMISSIONER OF TAXATION

1 On 16 December 2011, I gave judgment in an appeal brought by Carol Woods from orders made by the Associate Judge in an action against her by a Deputy Commissioner of Taxation. The Associate Judge had ordered that judgment be entered against the defendant/appellant on an application for summary judgment, and had later dismissed the appellant's application for a stay of execution. I allowed the appeal against the entry of judgment, but said that were it to have been necessary, I would dismiss the appeal against the refusal of a stay: [2011] TASSC 68.

2 The judgment, which was entered on 10 January 2011, was for approximately $1.65 million. This was the appellant's alleged liability for income tax, interest and penalties arising from various notices of assessment and amended assessment. The income in respect of which these assessments were made was approximately $1.6 million in international funds transfers to her in two separate years. The receipt of these sums was not declared. The appellant's position is that these funds were discretionary distributions from a trust. The appellant had disputed her liability in proceedings taken by her in the Administrative Appeals Tribunal under Part IVC of the Taxation Administration Act 1953 (Cth). Those proceedings were pending at the time of the applications to the Associate Judge.

3 The outcome of the appeal has given rise to the need to transfer the proceedings from this Court to the Federal Court. The current issues in the action are matters which are "special federal matters" under s3 of the of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), and by s6, as a general rule, must be heard by that Court. The combined operation of s6(1) and (3) of the equivalent Tasmanian Act is that special federal matters are to be transferred to the Federal Court unless there are special reasons for determining the matter in this Court. No special reasons exist.

4 The parties have agreed what consequential orders should be made following the resolution of the appeal, but disagree as to the appropriate costs orders. Written submissions have been filed. The appellant seeks orders for costs in her favour, both of the whole of both applications before the Associate Judge, and of the appeal. She argues that both sets of costs should be payable forthwith.

•

the costs which should be paid to the appellant in respect of the application for summary judgment should not be payable forthwith, but the usual consequences of such an order for costs made "in any event" should apply (that is, they are payable at the conclusion of the principal action);

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the appellant should pay the respondent's costs of the application for the stay of execution before the Associate Judge;

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the appellant should not have the whole of her costs of the appeal, and that the appeal costs should also await the final outcome.

The costs of the proceedings before the Associate Judge

6 It may well be necessary to explain the issues on the summary judgment application and why there were concurrent review proceedings in the AAT, pending the outcome of which a stay of execution on the judgment was sought. Central to the claim of the plaintiff/respondent in the action, are ss175, 175A and 177 of the Income Tax Assessment Act 1936 (Cth). Section 175 preserves the validity of an assessment where any of the provisions of the Act have not been complied with, and s175A enables a taxpayer who is dissatisfied with an assessment to object against it in the manner set out in Part IVC of the Taxation Administration Act. Section 177 provides that the production of a notice of assessment shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC, that the amount and all the particulars of the assessment are correct. Sections 175 and 177 must be read together, with s177 giving evidentiary effect to s175: Federal Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146.

7 The following paragraphs from my first decision explain the operation of these provisions and the situation in this case:

"9 The result is that the validity of an assessment is not affected by a failure to comply with any provision of the Act, but a dissatisfied taxpayer may object to the assessment in the manner set out in Part IVC of the TAA. In review or appeal proceedings under Part IVC, the amount and all the particulars of the assessment may be challenged by the taxpayer. Sections 14ZZK and 14ZZO of the TAA respectively relate to Administrative Appeals Tribunal reviews and Federal Court appeals, and provide that the taxpayer has the burden of proving that an assessment is 'excessive'. Thus the making of the assessment and of the particulars, including the amount of the tax due and payable, are beyond challenge in recovery proceedings; the taxpayer cannot go behind or challenge the assessment, except in Part IV proceedings.

10 Where there has been an assessment, and where s175 applies, ...

11 In this case, it is the application of ss175 and 177 to the first basis upon which leave to defend is sought, which is one major point of contention. The appellant argues that the absence of an opinion means there was no power to amend an assessment, and a challenge can competently be made otherwise than by way of Part IVC of the TAA on the basis of jurisdictional error. The respondent argues that the availability of a remedy for jurisdictional error is limited to the two categories referred to in Futuris, and that such an issue is caught by the provisions. That issue does not arise in relation to the second matter upon which leave to defend is sought. The allegation of lack of bona fides, is accepted to be one of maladministration, and one which can be made otherwise than by way of Part IVC of the TAA. The argument as to this basis of challenge is one on the merits."

8 On 14 October 2010 the Associate Judge ordered that summary judgment be given for the plaintiff/respondent on the claim, but directed that before the judgment is entered "an opportunity will be given to the defendant to pursue her foreshadowed application for a stay of execution pending the review of the disallowance of her objections [the AAT review] and the determination of any appeals following that review." On 8 December 2010 the appellant filed an application seeking a stay of execution pending the outcome of her application for review to the AAT, and further, that "the proceeding be stayed until 28 days from the date which [sic] the Defendant files her notice of appeal against the judgment".

9 The application was heard on 13 December, with judgment delivered on 23 December 2010. I am not able to find, in either the transcript of proceedings or the judgment, any reference to the second aspect of the stay application; that relating to a stay pending the appeal against the judgment. In any event, the stay pending the AAT review was refused and it was ordered that judgment be entered on the day on which the plaintiff certifies to the Court the defendant's current liability, for the amount certified, plus costs to be taxed.

10 Rule 65(a) of the Supreme Court Rules 2000 ("SCR") provides that unless the Court or a judge otherwise orders, the costs of an opposed application in a proceeding are part of the costs of the cause of the party in whose favour the application is determined.

11 Plainly enough, the "default" position, (the position unless otherwise ordered), is a particular type of order which carries with it the consequence that the costs are not payable forthwith. The costs outcome provided for by the rule means that the successful party has the costs of the application paid if successful in the action, but does not have to pay the other party's costs if ultimately unsuccessful: J T Stratford & Son v Lindley (No 2) [1969] 3 All ER 1122 at 1123; Gunns Ltd v Alishah (No 3) [2009] TASSC 103 at [12].

12 The discretion to order otherwise than as is provided for in r65 is unfettered. The power is not reserved for "rare" or "exceptional" cases. It is to be exercised when the interests of justice in the particular case require a departure from the rule: Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries [1992] FCA 291; (1992) 36 FCR 297 at 312; Spotwire Pty Ltd v Visa International Service Association (No 2) [2004] FCA 571 at [104]; S, D J v Channel Seven Adelaide Pty Ltd [2007] SASC 80; (2007) 97 SASR 118 at [4]; Gunns Ltd v Alishah (No 3) (above) at [12]. It will be remembered that in this case, the parties are agreed that the appellant have her costs of the summary judgment application, but are not agreed as to the costs of the stay application. In both instances, there is dispute as to when the costs should be made payable.

13 The rationale for the aspect of the operation of the rule which delays payment until the conclusion of the principal proceedings was noted by Sackville J in Courtney v Medtel Pty Ltd (No 3) [2004] FCA 347 at [20] and repeated and expanded on by Debelle J in Alstom Power Ltd v Yokogawa Australia Pty Ltd (No 2) [2006] SASC 87 at [6]. (See also S, D J v Channel Seven Adelaide Pty Ltd (above).) The policy considerations include:

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discouraging interlocutory applications;

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avoiding the inconvenience and possible oppression involved in a series of taxations where there are successive interlocutory applications;

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the fact that it is usually inappropriate to require the unsuccessful party to interlocutory applications to pay costs immediately, since that party might ultimately succeed in the substantive proceedings, and set-offs can be made in the light of the ultimate orders as to costs.

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that impecunious litigants who have a meritorious claim or defence ought not be forced out of the litigation due to an inability to meet interlocutory costs orders.

14 The cases from which these propositions were taken are Stack v Brisbane City Council (1996) 71 FCR 523 at 534; Vasyli v AOL International Pty Ltd [1996] FCA 804; Brasington v Overton Investments Pty Ltd [2001] FCA 571 at [13] and Bailey v Beagle Management Pty Ltd [2001] FCA 60; (2001) 105 FCR 136 at 145. See also Rafferty v Time 2000 West Pty Limited (No 3) [2009] FCA 727; (2009) 257 ALR 503 at 508 [20].

15 Factors which are said to justify the exercise of the discretion to order that costs of interlocutory proceedings be taxed and payable forthwith are of course, in several instances, mere reflections of the policy considerations. Factors which have been identified are:

s where the interlocutory proceedings are sufficiently self-contained and detached, or a discrete issue has been resolved;

s

where the principal proceedings are not likely to be resolved for some time, thus denying the successful party access to the costs;

s

where the interlocutory proceeding has had the effect of resolving a substantive part of the principal proceedings;

s

where the financial position of the party in whose favour the order is made is such that their ability to continue in the litigation may be affected ( and the same effect on the party liable is not likely as a result of paying immediately);

s

where there appears no real likelihood of multiple applications for costs to be taxed and payable forthwith as the interlocutory proceedings unfold;

s

where there has been some unreasonable conduct by the party against whom the costs have been awarded.

16 As to these factors, see for instance Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432; (2002) 55 NSWLR 1 at [10] - [13], Alstom Power Ltd v Yokogawa Australia Pty Ltd (No 2) (above) at [8], S, D J v Channel Seven Adelaide Pty Ltd (above) at [11] -[12], 28], [40]. The list of factors is not an exhaustive one, and in the exercise of the discretion a court should have regard to the demands of justice as shown in the particular case: Livestock Transport Pty Ltd v Commonwealth (No 3) [2011] NSWSC 320 at [5].

17 As to whether the conclusion of the interlocutory proceedings marks the determination of a separately identifiable matter or discrete aspect, Barrett J in Fiduciary Ltd v Morningstar Research Pty Ltd (above) at [18], suggested that the factor of delay before final resolution of the principal proceedings plays a part in that exercise. That is, the assessment of whether the interlocutory proceedings involve a separate matter or discrete aspect is not confined to a conceptual approach. Further, in Hamod v State of New South Wales [2007] NSWSC 707, Simpson J took the view that a failed application for discovery in an action was a discrete aspect which, when put alongside the potential delay before finality, and the disparity between the parties' resources, justified an order that the costs be paid forthwith.

18 Although the true position is that the general rule may be departed from if the interests of justice in a particular case require it, it has been suggested that over the years the power to order that costs be paid forthwith has been used sparingly. On one view, the proper application of the rationale for the rule might result in comparatively few cases in which the power is exercised. However, it has been said that the power should be used less sparingly than it has in the past: McKellar v Container Terminal Management Services Ltd [1999] FCA 1639 at [41]; Airservices Australia v Jeppesen Sanderson Inc [2006] FCA 906 at [31]. This was said in the context of costs thrown away as a result of ill-considered pleadings in lengthy and complex cases, but there is nothing to suggest that the sentiment has broader application.

19 For the reasons which follow, I consider it just as between the parties to order that the respondent pay the appellant's costs of the summary judgment application before the Associate Judge, and that they be taxed and payable forthwith. First, although I think it difficult to characterise the application for summary judgment as a separate and discrete issue in the relevant conceptual sense, its determination resolved the question of whether there were triable issues. Its determination also resulted in the narrowing of what matters could be pursued by the appellant by way of defence to the action, and the matters the subject of the counterclaim for declaratory relief, and more broadly, brought to an end the proceedings so far as they can be pursued in this Court. As an aspect of that, the appellant submits that once the proceedings are transferred to the Federal Court, questions may arise as to the taxation of costs which this Court has ordered be paid. The submission is that it is not clear whether the Federal Court would have jurisdiction to tax the costs, or whether that component of the proceedings would have to come back for that purpose.

20 The respondent submits that the answer in terms of jurisdiction is in s11(3) of both the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), and the Tasmania equivalent, the former of which provides:

"Conduct of proceedings

(1) ...

(2) ...

(3) Where a proceeding is transferred or removed to a court (in this subsection referred to as the transferee court) from another court (in this subsection referred to as the transferor court), the transferee court shall deal with the proceeding as if, subject to any order of the transferee court, the steps that had been taken for the purposes of the proceeding in the transferor court (including the making of an order), or similar steps, had been taken in the transferee court."

21 I agree that this provision would in this instance give to the Federal Court the jurisdiction to act on an order for costs made in this Court. I see no practical difficulty in the Federal Court taxing the costs of proceedings in this Court. It would be a simple matter of applying any relevant law, the usual taxation considerations, and the relevant costs scale.

22 Second, it seems to me that the proceedings are still in their infancy and finality is some distance in time away. The pleadings were barely closed at the time of the making of the summary judgment application and nothing else had been done. The discovery process will be undertaken once the matter has been transferred. Because of the issues in the proceedings, one of which is the lack of bona fides of an officer of the Australian Taxation Office, I anticipate that the discovery process will not be straightforward. I understood from something that was said during argument that leave to interrogate will be sought. All of this suggests not inconsiderable delay before the matter is ready for trial.

23 Third, there is the question of the comparative disparity in resources between the appellant and the respondent. Of course the proceedings concern the tax payable on a considerable sum of money, but the appellant in her affidavit in support of the application for a stay, said that her income is limited to $20,000 per annum. This came from her position as the director of a company which is the trustee of a discretionary family trust. That company is funding her legal representation and she owes to it a substantial amount of money. She further deposed that she had no assets of any significant value. The Associate Judge took the view that on the material before him the appellant (defendant) had failed to persuade him that bankruptcy would result in extreme personal hardship, as is required in a stay of execution proceedings in these types of matters. His Honour was critical of the lack of specificity in the evidence adduced. (On the appeal, I took the view that no error had been shown in application of principle, nor any error of fact.)

24 Even accepting the evidence on the stay application was sparse, there remains on the basis of the unchallenged evidence a clear disparity between the parties' respective financial positions. As Simpson J said in Hamod v State of New South Wales (above) at [12]:

"The plaintiffs have been put to considerable expense in a proceeding in which they are pitted against the resources of State. It is not difficult to infer, from examination of the pleadings, and the historical matters referred to in the appeal, ... that the plaintiffs' resources are limited. Nor could it be suggested that an order of the kind now sought would work any hardship to the [State of New South Wales]."

25 Her Honour's further comments are applicable to this aspect of the case, (noting of course the position of the parties is reversed):

"13 Whatever the outcome of the substantive proceedings, the first defendant will be liable to the plaintiffs for the costs of the discovery application. I can see no reason why it should not be required to make that payment forthwith. I recognise that, should the first defendant ultimately prevail, there may be some risk that its recovery of costs that could be then expected to be ordered against the plaintiffs would not be recoverable, and that, in the ordinary course, the costs of the discovery application would be offset against whatever the first defendant was entitled to.

14 However, in the end, I am of the view that the interests of justice are best served by making an order of the kind sought on behalf of the plaintiffs."

26 I should mention the separate part of the application by which a stay was sought for 28 days after the date on which "the Defendant files her notice of appeal against the judgment." As I have noted, I am not able to discover what happened to it. Neither party has mentioned it in the submissions made. The combined effect of SCR rr676 and 680A is that an appeal from the Associate Judge does not operate as a stay of proceedings. It might be thought that the application led to some agreement between the parties about a stay pending appeal, but in the absence of further information and any reference to it, I will have to treat it as having no significance.

27 I should also note that in relation to an application for a stay of execution pending a review, a defendant faces a difficult task. Sections 14ZZM and 14ZZR of the Taxation Administration Act specifically enable recovery to be pursued notwithstanding review or appeal proceedings under Part IVC. The law is that priority is given to the recovery of revenue, and the power to stay execution in these types of action should be exercised sparingly or with great caution: Deputy Commissioner of Taxation (NSW) v Mackey (1982) 13 ATR 547. The mere imposition of the obligation to pay does not of itself constitute hardship: Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 at 139.

28 The appellant says that the respondent should pay the costs of the stay application because it was only necessary due to the entry of the judgment which is now to be set aside. The respondent acknowledges that the stay application was "consequential upon the entry of summary judgment", but submits that having regard to the appellant's failure to establish at first instance that bankruptcy would cause her extreme personal hardship, and the indicated fate of the appeal as to the stay, the appellant should pay the respondent's costs.

29 It is true that the successful summary judgment application gave rise to the application for a stay in the sense that, but for judgment having been entered, it would not have been pursued. It was later proved to have been unnecessary by the ultimate fate of the summary judgment application on appeal. At the same time, it is also true that the application stood or fell on its factual merits, and that it fell because the material upon which the appellant relied, failed to persuade the Associate Judge that bankruptcy would result in extreme personal hardship. The evidence did not persuade his Honour that without a stay of execution, the appellant would lose her capacity to demonstrate that the assessments were wrong. His Honour noted deficiencies in the evidence as follows:

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the value of the trust's assets was not stated, the names of the primary beneficiaries were not given, the trust deed had not been produced, and no details of any benefits which the appellant received from the trust had been provided;

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there was nothing to suggest that in bankruptcy the appellant would lose her home or assets of special significance, or that there would be any material change to her lifestyle;

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there was no evidence that she was engaged in business, and no evidence that she has, or is dependent upon, an unblemished business reputation, or a good general reputation;

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there was no evidence as to how the stigma of bankruptcy might impact on her; and,

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the appellant did not assert that the continuing funding of her legal representation would cease upon bankruptcy, and there is no evidence that the trust would continue to fund representation even if there was no bankruptcy.

30 In resolving the dispute, I think it should be borne in mind that costs of the type sought are compensatory in nature: Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72. It seems to me that the first question to be addressed is whether the appellant, as a failed applicant, should pay the respondent's costs. I think the primary and fundamental answer to this proposition is that, but for the entry of judgment, the need for such an application would not, of course, have arisen. . Further, I do not think, and it has not been suggested, that the application itself was unreasonably made. In these circumstances, I do not see that the failure on the merits is sufficient to require the appellant to pay the respondent's costs.

31 The next question is whether the respondent should pay the appellant's costs. The appellant advanced no reason other than the causal connection between the judgment and the application. But for the success of the respondent's application for summary judgment before the Associate Judge, the application would not have been made. I have held that summary judgment should not have been ordered. In short, this was on the basis that on a proper application of the principles relating to summary judgment, there was a question of law which was arguable and needed to be decided, and a factual dispute which needed to be resolved. I do not think though, that it can be said that the application for summary judgment was unreasonably made thus making the respondent liable to bear the costs on that basis.

32 Those things notwithstanding, I think the operative effect of the causative link between the judgment which I have held ought not to have been entered, and the stay application, is such that as well as relieving the appellant of any obligation for costs, it requires the respondent to pay the appellant's costs. I think that is where the interests of justice lie. Looking at it another way, although not as result of any act or omission on the part of the respondent, the costs of the stay application are, in a general sense, costs thrown away by the appellant.

33 However, I think that an element of compromise is appropriate, and that the respondent is entitled to a degree of relief in relation to the liability to the appellant. This is because the costs of the stay application were undoubtedly contributed to by arguments concerning the deficiencies in the evidence, which deficiencies ultimately caused the application's failure. I acknowledge that the assessment might be an imprecise one, but in all of the circumstances, I think the fair outcome is that the respondent pay 80% of the appellant's costs of the stay application. For essentially the same reasons which I gave earlier as to the costs of the summary judgment application, those costs will be taxable and payable forthwith.

34 An appeal from the Associate Judge is an appeal by way of re-hearing, and not by way of hearing de novo: Supreme Court Civil Procedure Act 1932, s191B(4). Plainly, the appeal is entirely a separate proceeding from the action, and it has come to an end. The only issues as to the costs of the appeal are whether the appellant gets the costs of the appeal as they relate to the stay, and whether such costs as are awarded to her are payable forthwith.

35 The appellant is claiming the whole of her costs of the appeal, whilst the respondent argues that the order should reflect my view that the appeal in relation to the stay would have been dismissed were that to have been necessary. The appeal on the stay question is clearly separable from the balance of the appeal: Burnie Port Corporation Pty Ltd v Bank of Western Australia Ltd (No 3) [2003] TASSC 132; (2007) 12 Tas R 325 at 335 [27]. In any event, a costs order on an appeal may reflect the fact that an appellant has succeeded in relation to some questions, and the respondent has succeeded on others: Marlow v Walsh (No 2) [2009] TASSC 40 per Blow J at [22] and the cases cited.

36 Although the causal connection between the summary judgment and the stay application has continued operation in this context of the appeal, I think it has less force than it had when considering the costs of the application itself. This is because the appellant was required to demonstrate error in the exercise of the Associate Judge's discretion, and did so without making any attempt to have fresh evidence (or any new evidence) put before me. She was faced with the presumption that the Associate Judge's decision was correct unless it was shown that his Honour had proceeded upon a wrong principle, or otherwise contrary to law, or on irrelevant or insufficient materials, or had misapprehended the facts or failed to consider any material fact: Supreme Court Civil Procedure Act, s45(1)(b).

37 In those circumstances, and at the risk of drawing fine distinctions, I do not consider that the appellant should have the costs of the appeal in their entirety. For the reasons given, and again acknowledging that there was debate about the consequences of the state of the evidence, I think that she should bear a proportion relating to the stay issue. This will not however, be one which represents the total costs of both parties of that issue. Any degree of precision is difficult. Not a great deal of space was occupied with the stay issue in the written submissions which were filed on the appeal, with the respondent devoting more attention to it. Only a small amount of time was spent on it during argument. Having regard to the appellant's success on the principal issue in the appeal, and based on those assessments, I think it fair to reduce the appellant's costs by 10%. There is no reason for the payment of the appeal costs to be delayed pending the outcome of the action.

1 The appeal is allowed to the extent that it relates to the entry of judgment.

2 The judgment entered on 10 January 2011 is set aside.

3 The order of 10 January 2011 striking out the counterclaim is set aside.

4 The order for costs made on 10 January 2011 is set aside.

5 The appellant/defendant has leave to defend the action on the bases pleaded in pars2(b) and 2(c)(iii) of the defence dated 8 March 2010.

6 The respondent/plaintiff is to pay the appellant/defendant's costs of the application for summary judgment, taxable and payable forthwith.

7 The respondent/plaintiff is to pay 80% of the appellant/defendant's costs of the application for a stay of execution, taxable and payable forthwith.

8 The respondent is to pay 90% of the appellant's costs of the appeal, taxable and payable forthwith.

9 The proceedings are transferred to the Melbourne Registry of the Federal Court of Australia.