[1963] HCA 51
Calderbank v Calderbank [1976] Fam 93
Grofam Pty Ltd v Federal Commissioner of Taxation [1997] FCA 660
Source
Original judgment source is linked above.
Catchwords
[1963] HCA 51
Calderbank v Calderbank [1976] Fam 93
Grofam Pty Ltd v Federal Commissioner of Taxation [1997] FCA 660
Judgment (2 paragraphs)
[1]
Judgment
On 15 December 2020, I delivered judgment in YWCA Australia v Chief Commissioner of State Revenue [2020] NSWSC 1798. What follows assumes familiarity with that decision. I made an order for costs as follows:
"(5) Order the defendant [Chief Commissioner of State Revenue] to pay the plaintiff's [YWCA Australia's] costs in proceeding numbers 2019/223120 and 2018/336819."
On 21 December 2020, YWCA Australia filed two notices of motion in proceeding numbers 2019/223120 and 2018/336819 seeking the following orders:
"ORDERS SOUGHT
1. Pursuant to rule 36.16(1) and/or (3A) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), paragraph 5 of the orders made on 15 December 2020 in the proceedings be varied by making an order pursuant to UCPR, r 42.14(2), or alternatively in accordance with the principles in Calderbank v Calderbank [1976] Fam 93, that the defendant pay the plaintiff's costs of these proceedings on the ordinary basis up to and including 11 May 2020 and thereafter on an indemnity basis.
2. The defendant pay the plaintiff's costs of this motion.
3. Such further orders as the Court sees fit."
The following evidence was relied on for the purpose of the motions by YWCA Australia. I have treated that evidence as read on the motions and have taken it into account:
1. affidavit of Benjamin Thomas Davis sworn 16 July 2019 and filed 18 July 2019 (which had been read in the principal proceedings); and
2. affidavit of Benjamin Thomas Davis sworn and filed 21 December 2020 which annexed a letter sent by YWCA Australia's solicitors by email on 11 May 2020 enclosing an offer of compromise.
The Commissioner relied on the Guidelines approved by the Treasurer for the purposes of s 275(3)(b)(iii) of the Duties Act 1997 (NSW) which were Exhibit B in the principal proceedings. I have treated the Guidelines as part of the evidence and have taken them into account.
The terms of YWCA Australia's offer were as follows:
"OFFER OF COMPROMISE
1. The Plaintiff offers to compromise the whole of its claim in the proceedings numbered 2018/336819 and 2019/223120 (Proceedings) on the following terms:
(a) The Plaintiff, with the consent of the Defendant, discontinue the Proceedings pursuant to Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 12.1 with no order as to costs.
(b) Each party to take such steps as are necessary, including the Defendant providing notices of consent in accordance with UCPR, r 12.1(2)(b), to cause the Proceedings to be discontinued within 14 days of acceptance of this offer.
(c) Pursuant to section 13 of the Taxation Administration Act 1996 (NSW) (TAA), the Defendant to withdraw the assessments dated 30 October 2018 identified in Order 1 of the Summons filed in proceeding no 2019/223120, being assessment numbers OSR Ref 9473022-001, 9473022-022, 9473022-003, 9473022-004, 9473022-005, 9473022-006 and 9473022-007 (2018 Assessments).
(d) Pursuant to section 12(1)(b) of the TAA, the Defendant issue one or more compromise assessments to the Plaintiff in relation to the transactions in respect of which the 2018 Assessments were issued in an aggregate amount (including duty, penalty taxes, interest or any other amount) not exceeding $380,653.68.
(e) The Defendant refund to the Plaintiff the sum of $3,000,000 of the $3,380,653.68 paid to the Defendant in respect of the 2018 Assessments within 21 days of acceptance of this offer. The remaining $380,653.68 is to be retained by the Defendant and applied in payment of the compromise assessment or assessments issued by the Defendant pursuant to paragraph 1(d) of this offer.
(f) The Defendant is not required to pay interest on the amount refunded.
2. This offer remains open for acceptance for 28 days from 11 May 2020.
3. This offer is made in accordance with Part 20 Division 4, in particular Rule 20.26, of the Uniform Civil Procedure Rules 2005 (NSW).
If this offer is found to be non-compliant with the UCPR, it is to be treated as an offer on the same terms and conditions made in accordance with the principles in Calderbank v Calderbank [1976] FAM 93 and section 131(2)(h) of the Evidence Act 1995 (NSW)."
The offer was open for 28 days from 11 May 2020. The Commissioner acknowledged receipt of the offer, but the offer lapsed without a substantive response.
Rule 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) provides, relevantly:
20.26 Making of offer (cf SCR Part 22, rules 1A, 2, 3 and 4; DCR Part 19A, rules 1, 2, 2A, 3 and 4; LCR Part 17A, rules 2 and 5)
(1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms.
(2) An offer under this rule -
(a) must identify -
(i) the claim or part of the claim to which it relates, and
(ii) the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and
…
(c) must not include an amount for costs and must not be expressed to be inclusive of costs, and
(d) must bear a statement to the effect that the offer is made in accordance with these rules, and
…
(f) must specify the period of time within which the offer is open for acceptance.
(3) An offer under this rule may propose -
(a) a judgment in favour of the defendant -
(i) with no order as to costs, or
(ii) despite subrule (2)(c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or
(b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or
(c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer.
(4) If the offeror makes an offer before the offeree has been given such particulars of the offeror's claim, and copies or originals of such documents available to the offeror, as are necessary to enable the offeree to fully consider the offer, the offeree may, within 14 days of receiving the offer, give notice to the offeror that -
(a) the offeree is unable to assess the reasonableness of the offer because of the lack of particulars or documents, and
(b) in the event that rule 42.14 applies to the proceedings, the offeree will seek an order of the court under rule 42.14(2).
(5) The closing date for acceptance of an offer -
(a) in the case of an offer made two months or more before the date set down for commencement of the trial - is to be no less than 28 days after the date on which the offer is made, and
(b) in any other case - is to be such date as is reasonable in the circumstances.
(6), (7) (Repealed)
(8) Unless the notice of offer otherwise provides, an offer providing for the payment of money, or the doing of any other act, is taken to provide for the payment of that money, or the doing of that act, within 28 days after acceptance of the offer.
(9) An offer is taken to have been made without prejudice, unless the notice of offer otherwise provides.
(10) A party may make more than one offer in relation to the same claim.
(11) Unless the court orders otherwise, an offer may not be withdrawn during the period of acceptance for the offer.
(12) A notice of offer that purports to exclude, modify or restrict the operation of rule 42.14 or 42.15 is of no effect for the purposes of this Division.
Rule 42.14 of the UCPR provides:
42.14 Where offer not accepted and judgment no less favourable to plaintiff (cf SCR Part 52A, rule 22; DCR Part 39A, rule 25)
(1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer.
(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim -
(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and
(b) assessed on an indemnity basis -
(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and
(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.
The principles in Calderbank v Calderbank [1976] Fam 93 are well known and need not be repeated here.
Section 3(1) of the Taxation Administration Act 1996 (NSW) defines "assessment" as:
assessment means an assessment made by the Chief Commissioner under Part 3 of the tax liability of a person under a taxation law, and includes:
(a) a reassessment and a compromise assessment under Part 3, and
(b) an assessment by the Supreme Court or the Civil and Administrative Tribunal on an application for a review.
The Duties Act is a "taxation law" for the purpose of s 3: s 4 of the Taxation Administration Act. By s 8(1) of the Taxation Administration Act, the Commissioner "may make an assessment of the tax liability of a taxpayer".
By s 12 of the Taxation Administration Act, the Commissioner has the power to make a compromise assessment in the circumstances of, relevantly, s 12(1)(b):
12 Compromise assessment
(1) The Chief Commissioner may make an assessment in accordance with this section:
(a) if it is difficult or impracticable for the Chief Commissioner to determine a person's tax liability under a taxation law without undue delay or expense because of the complexity or uncertainty of the case or for any other reason, or
(b) for the purpose of settling a dispute between the Chief Commissioner and a person concerning the person's tax liability (whether or not a previous assessment has been made).
(2) The Chief Commissioner may, with the agreement of the taxpayer, assess liability in an amount specified in, or determined in accordance with, the agreement.
(3) Despite section 9, the Chief Commissioner cannot make a reassessment of a tax liability assessed in accordance with this section:
(a) except with the agreement of the taxpayer, or
(b) unless the assessment under this section was procured by fraud or there was a deliberate failure to disclose material information.
(4) (Repealed)
(5) This section does not limit the power of the Chief Commissioner to make an assessment by way of estimate under section 11.
Section 12(1)(b) was inserted into the Taxation Administration Act by the State Revenue Legislation Further Amendment Bill 2012 (NSW). The insertion of s 12(1)(b) clarified the Commissioner's power to make a compromise assessment. The then Treasurer explained in the Second Reading Speech:
"The bill also includes an amendment to the Taxation Administration Act 1996 to clarify the Chief Commissioner's power to make a compromise assessment of a tax liability as part of a settlement of a dispute that is subject to an objection or an appeal to the Administrative Decisions Tribunal or court.
Such settlements can avoid costly and time-consuming litigation in cases where there is uncertainty about relevant facts or about the application of the legislation to the facts of the particular case." [1]
YWCA Australia submitted that:
1. the offer complied with r 20.26 of the UCPR;
2. the judgment was no less favourable to YWCA Australia than the terms of the offer;
3. the offer represented a real and genuine compromise of its claim; and
4. there was no reason for the Court to "order otherwise" pursuant to UCPR r 42.14(2).
YWCA Australia submitted that if the offer was treated as a Calderbank offer, the question would then be whether the Commissioner's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule that costs follow the event. It was submitted that such a departure would be justified where in all the circumstances it was unreasonable of the Commissioner not to accept the offer. In considering the stage of the proceedings, the time allowed to consider the offer, the extent of the compromise and the Commissioner's prospects of success, it was submitted to be unreasonable in all the circumstances for the Commissioner to have not accepted the offer.
YWCA Australia submitted that s 12(2) of the Taxation Administration Act expressly conferred power on the Commissioner to issue a "compromise assessment" in an amount specified in, or determined in accordance with, an agreement.
In essence, the Commissioner submitted that he was not in a position to accept and implement the offer because paragraph 1(d) of the offer required the Commissioner to issue an assessment or assessments pursuant to s 12(1)(b) of the Taxation Administration Act which would not have represented a valid and bona fide exercise of the Commissioner's power to make an assessment. The difficulty with the offer from the Commissioner's perspective was that paragraph 1(d) required the Commissioner to issue an assessment that would not have involved a properly available application of the law to the taxable facts. The Commissioner pointed out that ultimately in the trial YWCA Australia eschewed reliance on ss 275(3)(b) and 275A with respect to the Song Hotels. An assessment of any liability where s 275(3)(a) was engaged could not be above a nil amount.
The Commissioner submitted that Grofam Pty Ltd v Federal Commissioner of Taxation [1997] FCA 660; (1997) 36 ATR 493 was authority for the proposition that where a settlement of a dispute contemplates the issue of an assessment under the Act, the Commissioner must nevertheless produce an assessment capable or representing a valid and bona fide exercise of his power to make assessments of a taxpayer's liability. The Commissioner contended that a compromise assessment issued under s 12 of the Taxation Administration Act must still involve a properly available application of the law to the taxable facts. The Commissioner submitted that there was no properly available method by which the Commissioner could have issued an assessment in respect of the properties the subject of the proceedings relying on any combination of ss 275(1)(a)/(3)(a) or 275(1)(a)/(3)(b) or 275A of the Duties Act in a total amount of $380,653.68.
I accept, as YWCA Australia submitted in reply, that the power to issue a compromise assessment under s 12(1)(b) should be given a broad interpretation. The power to compromise proceedings by issuing an assessment should not be read down unless it is necessary to do so. The extent of the Commissioner's power of general administration of the tax legislation permits him to compromise litigation. It is clear that when the word "assessment" is used in the Taxation Administration Act it refers to "the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case": Batagol v The Commissioner of Taxation of the Commonwealth of Australia (1963) 109 CLR 243; [1963] HCA 51 at 252 (Kitto J). In the case of a compromise assessment under s 12(1)(b) the amount specified becomes the amount due and payable as the proper tax in that case.
The cases referred to by the Commissioner as providing authority for the proposition that an assessment of the kind sought in the offer of compromise could not be made, R v Commissioner of Taxation (WA); Ex parte Briggs (1986) 12 FCR 301 and Grofam, are very different cases under different statutory regimes and no general principle applicable to this case may be extracted from them.
In my view the Commissioner had power to issue a compromise assessment in the amount the subject of the settlement offer. The provisions of s 12 of the Taxation Administration Act granting wide powers to make a compromise assessment should not be read down or limited unless it is necessary to do so. No reason to limit the existence of the power was shown. I would be very reluctant to conclude that making an assessment as part of accepting an offer of settlement was not a valid and bona fide exercise of the Commissioner's power to make assessments. The offer made by YWCA Australia was an offer within the meaning of UCPR r 20.26 and the outcome for the Commissioner before me was less favourable than the terms of the offer. It was not seriously in dispute that the offer involved a substantial compromise by the taxpayer from the position it achieved in the litigation.
I have concluded, however, that despite there being power to make the compromise assessment, this is a case where, in the exercise of the power in UCPR r 42.14(2), I should "otherwise order". It is relevant in the exercise of the power in UCPR r 42.14(2) that the offer of compromise asked the Commissioner to exercise a public power to make an assessment, albeit a compromise assessment. The peculiar facts of this case make it one where I should "otherwise order".
There is a difference in the authorities about whether r 42.14(2) requires exceptional circumstances for the court to "otherwise order": see Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [15] (Spigelman CJ, Beazley JA and McColl JA); Barakat v Bazdarova [2012] NSWCA 140 at [42]-[49] (Tobias AJA, with whom Bathurst CJ and Whealy JA agreed). It is not possible to state the circumstances in which the court's discretion to "otherwise order" might be exercised: Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [48] (McColl JA, with whom Gleeson JA and Sackville AJA agreed). It is not necessary to determine whether a court's discretion to "order otherwise" under r 42.14(2) is confined to "exceptional circumstances": see Barakat v Bazdarova at [48]; Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) at [46]-[48]; Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [32]-[38] (Gleeson JA and Tobias AJA). To the extent that such circumstances are required, they are present here.
Although I accept that the Commissioner had power to make a compromise assessment, the taxable facts in the present case bore no relation, on either the Commissioner's case or YWCA Australia's case, to one warranting an assessment for the 2018 year in an aggregate amount (including duty, penalty taxes, interest or any other amount) not exceeding $380,653.68.
Although I continue to have considerable sympathy for YWCA Australia in being required to conduct these proceedings, it would in my view amount to an exceptional circumstance warranting my "otherwise ordering" for the Commissioner, as the officer responsible for enforcement and collection of the revenue in NSW, to be forced, on pain of an indemnity costs award, to make an assessment which in no way reflected a view of the taxable facts which may be established in the litigation.
In many revenue cases it is no doubt possible to reach a compromise figure and issue a compromise assessment reflecting a view of the taxable facts which was different from that which each party argued for but which reflected a sensible view about what a court may find in the matter. This was not such a case.
The case was framed initially as one where the court would be invited, in the alternative, to make an assessment for an amount less than the amount of the ultimate assessment pursuant to ss 275(3)(b)/275A. As I explained in the primary judgment at [232]-[244], however, by the time of the trial that part of YWCA Australia's case involved a comparatively small sum. The issues in the trial essentially involved an all or nothing result for the Commissioner and YWCA Australia. Neither the Commissioner nor the taxpayer contended that the proper application of the law gave rise to taxable facts from which an assessment in the amount suggested in the offer of settlement could be made.
Despite the existence of the statutory power to make a compromise assessment, accepting YWCA Australia's offer would have involved the Commissioner making an assessment contrary to any reasonably available argument about the operation of the taxable facts and the operation of the Guidelines. This in my view provides an exceptional and sufficient reason to "otherwise order".
For essentially the same reasons, the rejection of the offer as a Calderbank offer by the Commissioner was not unreasonable in all the circumstances of the case.
It follows that the motions filed by YWCA Australia should be dismissed. Although the Commissioner succeeded in resisting an award of indemnity costs, he failed on his principal contentions about a lack of power to make a compromise assessment which involved a separable issue. For this reason, each party should pay their own costs of the motions.
I make the following orders:
1. The notices of motion dated and filed 21 December 2020 in proceeding numbers 2018/336819 and 2019/223120 are dismissed;
2. Each party pay their own costs of the motions.
[2]
Endnote
NSW Legislative Assembly, Parliamentary Debates (Hansard), 20 September 2012 at 15583.
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Decision last updated: 19 February 2021