Top of the Cross Pty. Limited v. Federal Commissioner of Taxation.

Judges:
Enderby J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 17 May 1985.

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Enderby J.

This matter came to the Court by way of a notice of motion filed by the Commissioner of Taxation seeking certain orders. The first was that a decision of Mr Shepherd, the taxing officers of the Supreme Court, relating to the scale of costs he used in a taxation appeal, be set aside; and the second was that the matter be referred back to Mr Shepherd with a direction that the bill of costs filed by the respondent to this application, Top of the Cross Pty. Limited, be taxed pursuant to the High Court scale of costs as operating in February 1968.

Top of the Cross was successful in an appeal against a decision of the Commissioner relating to an assessment of their income tax. That appeal was heard by Woodward J. who had ordered that the Commissioner pay the costs of the Top of the Cross incurred in the appeal. It is the scale of taxation of those costs that is at issue in the matter before me.

Mr Shepherd, who conducted the taxation, was faced with two alternative sets of submissions concerning the proper scale of costs to apply. He was faced with the submission by the Commissioner that the proper scale was the scale appropriate in the High Court in February 1968, and he was faced with the alternative submission from Top of the Cross that the appropriate scale was the High

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Court scale in operation between 1979 and 1983, which was the time when the work was done. The bill of costs had been prepared on that latter basis. Mr Shepherd rejected both submissions and decided that in the interests of common sense and equity the appropriate scale was not a High Court scale at all, but rather the scale appropriate to a like proceeding in the Supreme Court of New South Wales. He included in his ``reasons'' a statement that the normal practice, until his decision, had been for costs in income tax appeal cases to be drawn and assessed according to the High Court scale as it was in 1968, and he expressed his view, which he said he had long held, that he had had reservations about this practice and had doubted its correctness. He stated, amongst other things, that the practice had arisen, in his opinion, from the fact that the Commissioner won more taxation appeals than did other parties, and that it was not surprising that the Commissioner was satisfied with the 1968 scale. He also expressed the opinion that most of the few successful appellants other than the Commissioner who had won their appeals had not objected to the old 1968 scale, because perhaps they were grateful for small mercies. He stated this was the first case in his experience where the matter had been raised and put in issue and argued.

He gave some selected comparisons of the relevant scale costs to illustrate what he called the absurdity of applying a 1968 scale of costs to work done years later and to a taxation taking place in 1985. An example that he gave was that the 1968 scale prescribed an hourly rate of $8.40, whereas the 1984 scale prescribed a rate varying from $28.10 to $56.20 for the same work. To give emphasis to what he described as an absurd situation, he asked the question:

``What would be the discrepancy if the 1968 scale was still being applied in the year 2001?''

In his search for an answer, Mr Shepherd drew attention to the fact that application of the High Court scale to taxation appeals throughout the various part of Australia would produce strange results. He cited a well-known fact that legal costs are higher in New South Wales than legal costs are in, say, South Australia and he made it clear in his reasoning that such facts helped him in coming to the view that common sense required that the legislation be interpreted so that the State Supreme Court scales would operate, because they were more in accord with a just decision.

Mr Shepherd's reasons for coming to the decision he came to are very commendable in their appeal to common sense, but the question is whether they are correct in law and permissible within the meaning of the relevant legislation.

A consideration of that legislation has to begin with an examination of the relevant sections of the Income Tax Assessment Act and, in particular, sec. 187, 196 and 196A. Those are the sections that bring income tax appeals to this Court.

The sections were introduced into the Income Tax Act as a temporary measure pending the establishment of what was to be the Superior Court of Australia. The Australian government of the day stated its intention that taxation appeals would eventually be dealt with by that Court, because there was a pressing need to relieve the High Court of its excessive single justice work. It expressed its intention that the State Supreme Courts be given jurisdiction as an interim measure and it was clear that it was not intended that they would exercise that jurisdiction for long. A reading of Hansard, and even a recollection of the history of that time and the language of sec. 196A reveals that sec. 196A was intended to complement sec. 187 and 196, which gave a temporary jurisdiction to the Supreme Courts to hear taxation appeals.

Section 196A provided that the practice and procedure in those appeals to the Supreme Courts was to be the practice and procedure as found in the High Court Rules, until specific rules were made. Again, it is clear that it was all to be a temporary, interim measure pending the establishment of the Superior Court of Australia. The fact that that Court never came into existence and the fact that the Federal Court of Australia did and the fact that the jurisdiction has not been taken away from the Supreme Courts of the States is not the point.

Sections 187, 196 and 196A were put into the Income Tax Act by Act No. 53 of 1973. That Act came into operation on 18 June 1973. The High Court scale of costs had remained unchanged between February 1968 and 31 October 1973. The change of law came about

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approximately four months before the costs scale was changed.

Despite what Mr Shepherd has called an absurdity, the Commissioner argues that the 1968 High Court scale is the applicable scale. The Top of the Cross argued that the High Court scale as it operated at the relevant time when the work was done is the relevant scale. Neither party has sought to support Mr Shepherd's decision to bypass the High Court scale altogether and decide that the State Supreme Court rules should apply.

I proceed to the actual legislation.

It is not necessary to recite the provisions of sec. 187, it merely sets out one of the ways in which a taxation appeal can come to this Court. Equally, it is not necessary to recite the provisions of sec. 196, which is another way in which a taxation appeal can come to this Court. The relevant section is sec. 196A, which is in the following terms:

``(1) Until regulations have been made under this Act for or in relation to the practice and procedure of a Supreme Court in proceedings to which this section applies, and so far as regulations so made do not make adequate provision, the High Court Rules as in force immediately before the date of commencement of this section under the Judiciary Act 1903-1969 apply, so far as practicable, to and in relation to a proceeding to which this section applies in like manner as they applied immediately before that date to and in relation to the like proceeding in the High Court.''

Subsection (2) states that the section applies to proceedings in a Supreme Court, being proceedings coming to the Supreme Court pursuant to either sec. 187 or 196. The matter that came before Woodward J. in 1980 was pursuant to sec. 187.

Both parties agreed that costs ordinarily fall within the expression ``practice and procedure'' as this expression is usually understood. The difficulty that confronted Mr Shepherd arises from the fact that sec. 196A speaks of the rules of the High Court ``as in force immediately before the date of commencement of this section...'' and makes them ``... apply, so far as practicable... in like manner as they applied immediately before that date... in... the like proceeding in the High Court''. The relevant date was 18 June 1973.

The apparent difficulty as it is seen to be, is the question, whether or not those words found in sec. 196A require that what is now an ancient scale is still to be applied, even though it produces an absurdity.

I need no authority for the proposition that a court in interpreting legislation will do its utmost consistent with the proper canons of interpretation to avoid producing an absurd result.

Mr Shepherd found himself able to avoid it by deciding that the words ``as in force immediately before the date of commencement'' in sec. 196A did not apply to the cost rules. He held that the purpose of sec. 196A was to give uniformity to proceedings in taxation appeals throughout Australia in the various State Supreme Courts as far as pleading and other like matters of procedure were concerned, but that it did not pick up the costs rule.

In my opinion it is not necessary to give any strained interpretation to the words to avoid the absurdity or to resort to Mr Shepherd's solution. To the extent that Mr Shepherd states that sec. 196A was intended to pick up and make use of the pleading and other procedural provisions of the High Court Rules, I agree with him. I find myself unable to agree, however, that it was not intended to pick up also the cost rules. I consider that those cost rules are picked up. The question then is - what is the effect of the words, ``in force immediately before the date of commencement of this section'' and ``as they applied immediately before that date''.

In the course of argument both parties accepted that 0. 65 of the High Court Rules was applicable. It deals with taxation appeals in both the High Court and in the Supreme Courts. It finds a place in the High Court Rules where it precedes other rules which deal with other instances of specific jurisdictions being given to the Supreme Courts. I need not set them out here.

Order 65, r. 1 is in the following terms:

``This Order applies to an appeal to the High Court or to the Supreme Court of a State or Territory under or pursuant to a law of the Commonwealth or of a Territory

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dealing with the assessment of taxation and to questions referred under such a law to the High Court.''

Order 65, r. 2 is in the following terms:

``Subject to this Order and to any law of the Commonwealth, the provisions of the other Orders of these Rules apply, so far as is practicable, to proceedings to which the last preceding rule applies.''

The High Court Rule dealing with costs is O. 71, and it is that Order which Mr Shepherd held did not apply. Order 71, r. 23 is in the following terms:

``Except when otherwise ordered, in all proceedings commenced or instituted after, or pending at the time when, these Rules come into operation, solicitors are, subject to these Rules, entitled to charge and be allowed the fees set forth in the Second Schedule in respect of the matters referred to in that Schedule, and higher fees shall not be allowed in any case except such as are by this Order otherwise provided for.''

It is the Second Schedule that is amended from time to time to reflect inflationary trends, cost of living adjustments, and matters of that sort. It is the Second Schedule that was not amended until 31 October 1973.

However, there is another rule in the High Court Rules which has to be considered and which, in my opinion, is also picked up by sec. 196A. It was cited to Mr Shepherd in the written submissions given to him by Top of the Cross but does not find a place in his reasons. Order 1, r. 6 is in the following terms:

``Where the provisions of an Act, or of these Rules, referred to in these Rules, have been amended, or repealed and re-enacted with or without modification, by a subsequent Act or Rules, reference in these Rules to the provisions so amended or repealed shall, unless the contrary intention appears, be construed as reference to the provisions so amended or re-enacted.''

That rule gives effect to an intent on the part of the Parliament that is consistent with the operation of sec. 10 of the Commonwealth Acts Interpretation Act. That section is in the following terms:

``Where an Act contains a reference to a short title that is or was provided by law for the citation of another Act as originally enacted, or of another Act as amended, then, except so far as the contrary intention appears -

• (a) the reference shall be construed as a reference to that other Act as originally enacted and as amended from time to time; and
• (b) where that other Act has been repealed or re-enacted, with or without modifications, the reference shall be construed as including a reference to the re-enacted Act as originally enacted and as amended from time to time and, where, in connexion with that reference, particular provisions of the repealed Act are referred to, being provisions to which provisions of the re-enacted Act correspond, the reference to those particular provisions shall be construed as including a reference to those corresponding provisions''

Order 1, r. 6, and sec. 10 both give effect to the same general legislative intent, which is to legislate, when legislating generally, so far as possible in accord with justice and reason and against injustice and absurdity. Both O. 1 r. 6 and sec. 10 use the expression ``except (or when) the contrary intention appears'' - the traditional device of the parliamentary draftsman.

In my opinion the expression in sec. 196A ``in force immediately before the date of commencement of this section'' and the words ``as they applied immediately before that date'' in the section are not an expression ``contrary'' to the general intent of O. 1, r. 6.

There is ambiguity in sec. 196A and although it is unusual to apply the expression per incuriam to parliamentary draftsmen, the ambiguity was in my opinion per incuriam. In my opinion, Parliament's intent was sufficiently clear. Section 196A was intended to pick up the High Court Rules and costs as they operated from time to time and were relevant to the time when work was done. That too is consistent with High Court and Supreme Court practice.

In my opinion, the High Court Schedules dealing with costs as they are amended from time to time applied to work done during those times in taxation matters brought in the

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Supreme Court of New South Wales pursuant to sec. 187 or 196 of the High Court Act. The proper scale is the High Court Scale applicable when the work was done. Despite the very commendable work by Mr Shepherd to find a solution to the ambiguity and the apparent problem, I find it was not necessary and I find that the wrong scale of costs was used in the taxation. It follows, however, that Mr Shepherd was correct in expressing his opinion that the practice previously followed was incorrect.

I set the decision aside. I refer the matter back to Mr Shepherd, or some other taxing officer with a direction that the bill of costs filed herein by Top of the Cross be taxed under the provisions of the Rules of the High Court applicable at the time when the work was done. I order the Commissioner to pay the costs.