Decision impact statement

International All Sports v Commissioner of Taxation (No 2)
Sportsbet Pty Ltd v Commissioner of Taxation

Venue: Federal Court of Australia
Venue Reference No: 962 of 2010, 963 of 2010, 185 of 2011
Judge Name: Jessup J
Judgment date: 1 September 2011
Appeals on foot: No.
Decision Outcome: Adverse

Impacted Advice

Impacted Practice Statements:

• PSLA 2009/9 -Conduct of Tax Office litigation

Subject References:
Costs
Offer of compromise
Indemnity Costs
Party and Party Basis
Quantum
Federal Court Rules (as in operation immediately prior to 1 August 2011)

Précis

Outlines the ATO's response to this case which concerns offers of compromise under Order 23 of the Federal Court Rules and Calderbank offers.

Brief summary of facts

On 15 April 2011, the Applicants had made offers of compromise ostensibly pursuant to Order 23 of the Federal Court Rules (FCR) offering to settle the proceedings on the basis that the Respondent would allow their objections in full and issue refunds, and that the Applicants would pay to the Respondent an amount of $500,000 (in each of proceedings VID 962 of 2010 and VID 963 of 2010) and $20,000 (in proceeding VID 185 of 2011). Under the offers, the proceedings were to be discontinued and each party would bear their own costs of the proceedings.

On 28 April 2011, the Respondent rejected the offers.

On 26 May 2011, the Commissioner proposed to the Applicants that the parties should agree on the quantum of the GST refunds to which the Applicants would be entitled, if they succeeded in the proceeding. The Applicants agreed to the quantum.

On 26 July 2011, the Court delivered judgment in relation to the taxation appeals in favour of the applicants and gave the parties liberty to apply on the question of costs.

As a result, the Applicants then applied to have their costs taxed on an indemnity basis, to the extent that those costs were incurred after 15 April 2011.

In making this application, the Applicants relied upon the offers of compromise made ostensibly pursuant to Order 23 of the FCR, as in operation immediately prior to 1 August 2011, and an offer made upon the principles associated with Calderbank v Calderbank [1976] Fam 93 (Calderbank). A Calderbank offer is an offer made to settle the dispute which is without prejudice save as to costs.

On 1 September 2011, Jessup J made orders dated 15 August 2011 that costs incurred up to and including 15 April 2011 be taxed on a party and party basis and costs incurred after 15 April 2011 be taxed on an indemnity basis.

Issues decided by the court

1. Whether Order 23 of the FCR as a whole, had no application in a proceeding by way of an appeal against an appealable objection decision pursuant to Order 52B of the FCR.

The Court held that Order 23 of the FCR applied to an appeal pursuant to Order 52B of the FCR. The Court noted that the Respondent had made a submission in the matter of Clark v Commissioner of Taxation [2010] FCA 415 (Clark) that Order 23 of the FCR as a whole, had no application in a proceeding by way of an appeal against an appealable objection decision pursuant to Order 52B of the FCR and that submission had been rejected. The Court was not persuaded that the judgement by Greenwood J in Clark was clearly wrong and was obliged to follow it.

2. Whether the Applicants' offers complied with Order 23 of the FCR, even though they did not specify how much of the sums for which the Applicants were prepared to settle constituted interest.

The Court held that, although the Applicants' offers did not specify how much of the sums for which the Applicants were prepared to settle constituted interest, the offers did comply with Order 23 of the FCR. The Applicants made no proposal about interest in their offers and had no cause to specify the amount of those offers that was in respect of interest.

3. Whether at the time the offers of compromise were made the Respondent was possessed of insufficient information to enable the Respondent to make an informed response to the offers.

The Court held that the principle in Simonovski v Bendigo Bank Ltd (No 2) [2003] VSC 139 applies only when an offeror seems to take advantage of the relevant rules of the court during a period when he was in default of his obligation to take steps in the proceeding. The Court further held the Applicants were not in default under directions given by the Court.

4. Whether the agreement that the parties ultimately reached as to the amounts of the refunds to which the Applicants would be entitled in the event of a successful outcome to the litigation, superseded, or overtook, the Applicants' offers of compromise.

The Court held that what was agreed between the parties in relation to the quantum of the GST refunds was not a compromise of the proceedings. Moreover, the sums to which the parties agreed were more than those for which the Applicants had offered to compromise the proceedings.

5. Whether the court should exercise its discretion under Order 23 Rule 11(4) of the FCR not to award indemnity costs on the basis of public interest and the particular position of the Respondent.

The Respondent submitted that due to his particular position and the interpretational issue in the substantive proceedings, the Court should exercise its discretion to "otherwise order" against the granting of indemnity costs to the Applicants. The Court held that these were not reasons to exercise its discretion.

6. Whether the court should order indemnity costs per Calderbank,

His Honour held he did not need to consider the Applicants' cases to the extent they relied on Calderbank. His Honour also noted that the point of construction on which the Commissioner failed was a difficult one and that it was not unreasonable for the Commissioner to insist that the point be resolved by the court.

ATO view of Decision

The Commissioner has not appealed this decision.

The Commissioner accepts that Order 23 of the FCR applies to taxation appeals under order 52B of the FCR as in operation immediately prior to 1 August 2011. Likewise, the Commissioner accepts that Rule 25 [or Part 25] of the Federal Court Rules 2011 applies to taxation appeals under Division 33.1 of the Federal Court Rules 2011.

The Commissioner maintains that each offer of compromise made under Order 23 of the FCR or Rule 25 of the of the Federal Court Rules 2011, as the case may be, must be dealt with on its own merits and having regard to the particular facts and circumstances of each offer. For example, the question of whether a matter raises issues of public interest and importance may be a relevant consideration.^[1]

Administrative Treatment

Implications for ATO precedential documents (Public Rulings & Determinations etc)

None identified

Implications for Law Administration Practice Statements

No changes to be made to PSLA 2009/9.

Court citation:
[2011] FCA 1027
83 ATR 885

Footnotes

See, for example, Australian Competition and Consumer Commission v Metcash Trading Limited (No 2) [2012] FCAFC 55, which considered sub-rule 25.14(2) of the Federal Court Rules 2011.

Legislative References:
Federal Court Rules (as in operation immediately prior to 1 August 2011)


Federal Court Rules

Case References:
Bank of Western Australia Limited and Others v Commissioner of Taxation
(1994) 55 FCR 233
29 ATR 432
94 ATC 4815

Calderbank v Calderbank
[1976] Fam 93

CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd
[2008] FCAFC 173

Clark v Commissioner of Taxation
[2010] FCA 415

Crvenkovic v La Trobe University
[2009] FCA 374

Ruddock and Others v Vadarlis and Others (No 2)
(2001) 115 FCR 229

Simonovski v Bendigo Bank Ltd (No 2)
[2003] VSC 139

Australian Competition and Consumer Commission v Metcash Trading Limited (No 2)
[2012] FCAFC 55