FEDERAL COURT OF AUSTRALIA Esso Australia Resources Pty Ltd v Commissioner of Taxation (No 2) [2012] FCAFC 7 Citation: Esso Australia Resources Pty Ltd v Commissioner of Taxation (No 2) [2012] FCAFC 7 Appeal from: Esso Australia Resources Pty Ltd v Commissioner of Taxation [2011] FCA 360 Esso Australia Resources Pty Ltd v Commissioner of Taxation (No 2) [2011] FCA 521 Parties: ESSO AUSTRALIA RESOURCES PTY LTD (ACN 091 829 819) v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA File numbers: VID 480 of 2011, VID 481 of 2011 VID 482 of 2011, VID 483 of 2011 VID 484 of 2011, VID 485 of 2011 VID 486 of 2011, VID 487 of 2011 VID 488 of 2011, VID 489 of 2011 VID 490 of 2011, VID 491 of 2011 VID 492 of 2011, VID 493 of 2011 Parties: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ABN 29 004 228 004) v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA File numbers: VID 536 of 2011, VID 537 of 2011 VID 538 of 2011, VID 539 of 2011 VID 540 of 2011, VID 541 of 2011 VID 542 of 2011, VID 543 of 2011 VID 544 of 2011, VID 545 of 2011 VID 546 of 2011, VID 547 of 2011 VID 548 of 2011, VID 549 of 2011 VID 550 of 2011, VID 551 of 2011 VID 552 of 2011, VID 553 of 2011 VID 554 of 2011 Parties: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA V BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD ABN 29 004 228 004 File numbers: VID 560 of 2011, VID 561 of 2011 VID 562 of 2011, VID 563 of 2011 VID 564 of 2011, VID 565 of 2011 VID 566 of 2011, VID 567 of 2011 VID 568 of 2011, VID 569 of 2011 Judges: KEANE CJ, EDMONDS, PERRAM JJ Date of judgment: 20 February 2012 Catchwords: COSTS – disposition of costs – costs follow the event – separate issues Legislation: Federal Court of Australia Act 1976 (Cth) Federal Court Rules 2011 (Cth) Petroleum Resource Rent Tax Assessment Act 1987 (Cth) Cases cited: Esso Australia Resources Pty Ltd v Commissioner of Taxation [2011] FCAFC 154 related Dates of hearing: Heard on the papers Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 15 Counsel for Esso Australia Resources Pty Ltd (ACN 091 829 819): Mr JW de Wijn QC and Mr AT Broadfoot Solicitor for Esso Australia Resources Pty Ltd (ACN 091 829 819): Allens Arthur Robinson Counsel for BHP Billiton Petroleum (Bass Strait) Pty Ltd (ABN 29 004 228 004): Mr DJ O'Callaghan SC and Mr GP Harris Solicitor for BHP Billiton Petroleum (Bass Strait) Pty Ltd (ABN 29 004 228 004): Allens Arthur Robinson Counsel for the Commissioner of Taxation: Mr GJ Davies QC, Mr H Foxcroft SC, Mr SJ Sharpley and Mr AD Pound Solicitor for the Commissioner of Taxation: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 480 of 2011 VID 481 of 2011 VID 482 of 2011 VID 483 of 2011 VID 484 of 2011 VID 485 of 2011 VID 486 of 2011 VID 487 of 2011 VID 488 of 2011 VID 489 of 2011 VID 490 of 2011 VID 491 of 2011 VID 492 of 2011 VID 493 of 2011 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: ESSO AUSTRALIA RESOURCES PTY LTD ACN 091 829 819 Appellant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGES: KEANE CJ, EDMONDS, PERRAM JJ DATE OF ORDER: 20 February 2012 WHERE MADE: brisbane THE COURT ORDERS THAT: 1. The appellant's appeals in relation to Questions 1-9 and Question 11 be dismissed. 2. The appellant's appeals in relation to Question 12 be allowed. The answers to Question 12 as set out in the Annexure to para 1 of the orders made on 18 May 2011 in proceedings VID 1024-1035, 1312 and 1313 of 2004 below be amended by deleting para (a) and replacing it with the following: "(a) The amounts of $3,550,209.98 and $4,828,584.63 included in the Applicant's assessable receipts in the tax years ended 30 June 1991 and 30 June 1993 respectively were not assessable petroleum receipts for the purposes of the Petroleum Resource Rent Tax Assessment Act 1987 (Cth) in those years and should be excised from the Applicant's assessable receipts in the tax years ended 30 June 1991 and 30 June 1993 respectively". 3. The respondent's cross-appeals in relation to Question 13 be dismissed. 4. Paragraph 3 of the orders made on 18 May 2011 in proceeding VID 1024 of 2004 below be amended by deleting subparagraph 3(b) and replacing it with the following: "(b) The applicant's assessment to Petroleum Resource Rent Tax is set aside and the matter is remitted to the respondent for issuing an amended assessment on the basis that the following amounts be excised from the applicant's assessable petroleum receipts: (i) the amount of $67,948 (being the amount returned by the applicant as an assessable petroleum receipt arising from the sale of surplus electricity sold from the Longford plant); and (ii) the amount of $3,550,209.98 (being the amount returned by the applicant as an assessable petroleum receipt relating to Make Up Gas taken by Genvic)". 5. Paragraph 3 of the orders made on 18 May 2011 in proceeding VID 1312 of 2004 below be amended by inserting a new item 3(b)(iv) which reads as follows: "(iv) the amount of $4,828,584.63 (being the amount returned by the applicant as an assessable petroleum receipt relating to Make Up Gas taken by Genvic)." 6. Paragraph 6 of the orders made on 18 May 2011 in proceeding VID1024-1032, 1034-1035, 1312 and 1313 of 2004 below be amended by: (a) deleting the reference to Question 12 in subparagraph 6(a); (b) inserting a reference to Question 12 in subparagraph 6(b). 7. Paragraph 6 of each of the orders made on 18 May 2011 in proceedings VID 1033 of 2004 below be amended by: (a) deleting the reference to Question 12 in subparagraph 6.1; (b) inserting a reference to Question 12 in subparagraph 6.2. 8. Subject to any agreement between the parties (including as to the method of taxation): (a) the appellant pay the respondent's costs of the appeals of or in connection with Questions 1-9 and 11 to be taxed on a party/party basis; (b) the respondent pay the appellant's costs of the appeals of or in connection with Question 12 to be taxed on a party/party basis; (c) the respondent pay the appellant's costs of the respondent's cross-appeals of or in connection with Question 13 to be taxed on a party/party basis; and (d) the respondent pay the appellant's costs of or in connection with the respondent's notices of contention dated 22 June 2011 to be taxed on a party/party basis. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 536 of 2011 VID 537 of 2011 VID 538 of 2011 VID 539 of 2011 VID 540 of 2011 VID 541 of 2011 VID 542 of 2011 VID 543 of 2011 VID 544 of 2011 VID 545 of 2011 VID 546 of 2011 VID 547 of 2011 VID 548 of 2011 VID 549 of 2011 VID 550 of 2011 VID 551 of 2011 VID 552 of 2011 VID 553 of 2011 VID 554 of 2011 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD ABN 29 004 228 004 Appellant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: KEANE CJ, EDMONDS & PERRAM JJ DATE OF ORDER: 20 February 2012 WHERE MADE: brisbane THE COURT ORDERS THAT: 1. The appellant's appeals in relation to Questions 1-9 and Question 11 be dismissed. 2. The appellant's appeals in relation to Question 12 be allowed. The answers to Question 12 as set out in the Annexure to para 1 of the orders made on 18 May 2011 in proceedings VID 1036-1045, 1047 of 2004 and 1120-1131 of 2007 below be amended by deleting para (a) and replacing it with the following: "(a) The amounts of $3,550,209 and $4,828,586 included in the Applicant's assessable receipts in the tax years ended 30 June 1991 and 30 June 1993 respectively were not assessable petroleum receipts for the purposes of the Petroleum Resource Rent Tax Assessment Act 1987 (Cth) in those years and should be excised from the Applicant's assessable receipts in the tax years ended 30 June 1991 and 30 June 1993 respectively". 3. Paragraph 3 of the orders made on 18 May 2011 in proceeding VID 1120 of 2007 below be amended by deleting subparagraph 3(b) and replacing it with the following: "(b) The applicant's assessment to Petroleum Resource Rent Tax is set aside and the matter is remitted to the respondent for issuing an amended assessment on the basis that the following amounts be excised from the applicant's assessable petroleum receipts: (i) the amount of $68,000 (being the amount returned by the applicant as an assessable petroleum receipt arising from the sale of surplus electricity sold from the Longford plant); and (ii) the amount of $3,550,209 (being the amount returned by the applicant as an assessable petroleum receipt relating to Make Up Gas taken by Genvic)". 4. Paragraph 3 of the orders made on 18 May 2011 in proceeding VID 1041 of 2004 below be amended by inserting a new item 3(b)(iii) which reads as follows: "(iii) the amount of $4,828,586 (being the amount returned by the applicant as an assessable petroleum receipt relating to Make Up Gas taken by Genvic)." 5. Paragraph 4 of the orders made on 18 May 2011 in proceeding VID1037 of 2004 below be amended by: (a) deleting the reference to Question 12 in subparagraph 4(a); (b) inserting a reference to Question 12 in subparagraph 4(b). 6. Paragraph 5 of each of the orders made on 18 May 2011 in proceedings VID 1040, 1042-1045 of 2004 and 1132 of 2007 below be amended by: (a) deleting the reference to Question 12 in subparagraph 5(a); (b) inserting a reference to Question 12 in subparagraph 5(b). 7. Paragraph 6 of each of the orders made on 18 May 2011 in proceedings VID 1036, 1038, 1039, 1041 and 1047 of 2004 and 1120-1131 of 2007 below be amended by: (a) deleting the reference to Question 12 in subparagraph 6(a); (b) inserting a reference to Question 12 in subparagraph 6(b). 8. Subject to any agreement between the parties (including as to the method of taxation): (a) the appellant pay the respondent's costs of the appeals of or in connection with Questions 1-9 and 11 to be taxed on a party/party basis; (b) the respondent pay the appellant's costs of the appeals of or in connection with Question 12 to be taxed on a party/party basis; and (c) the respondent pay the appellant's costs of or in connection with the respondent's notices of contention dated 23 June 2011 to be taxed on a party/party basis. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 560 of 2011 VID 561 of 2011 VID 562 of 2011 VID 563 of 2011 VID 564 of 2011 VID 565 of 2011 VID 566 of 2011 VID 567 of 2011 VID 568 of 2011 VID 569 of 2011 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appellant AND: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD ABN 29 004 228 004 Respondent JUDGE: KEANE CJ, EDMONDS & PERRAM JJ DATE OF ORDER: 20 february 2012 WHERE MADE: brisbane THE COURT ORDERS THAT: 1. The appellant's appeals in relation to Question 13 be dismissed. 2. Subject to any agreement between the parties (including as to the method of taxation), the appellant pay the respondent's costs of or in connection with Question 13 to be taxed on a party/party basis. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 480 of 2011 VID 481 of 2011 VID 482 of 2011 VID 483 of 2011 VID 484 of 2011 VID 485 of 2011 VID 486 of 2011 VID 487 of 2011 VID 488 of 2011 VID 489 of 2011 VID 490 of 2011 VID 491 of 2011 VID 492 of 2011 VID 493 of 2011 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: ESSO AUSTRALIA RESOURCES PTY LTD ACN 091 829 819 Appellant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 536 of 2011 VID 537 of 2011 VID 538 of 2011 VID 539 of 2011 VID 540 of 2011 VID 541 of 2011 VID 542 of 2011 VID 543 of 2011 VID 544 of 2011 VID 545 of 2011 VID 546 of 2011 VID 547 of 2011 VID 548 of 2011 VID 549 of 2011 VID 550 of 2011 VID 551 of 2011 VID 552 of 2011 VID 553 of 2011 VID 554 of 2011 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD ABN 29 004 228 004 Appellant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 560 of 2011 VID 561 of 2011 VID 562 of 2011 VID 563 of 2011 VID 564 of 2011 VID 565 of 2011 VID 566 of 2011 VID 567 of 2011 VID 568 of 2011 VID 569 of 2011 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: the commissioner of taxation of the commonwealth of australia Appellant AND: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD ABN 29 004 228 004 Respondent JUDGES: KEANE CJ, EDMONDS, PERRAM JJ DATE: 20 february 2012 PLACE: brisbane REASONS FOR JUDGMENT 1 On 6 December 2011, the Court published its reasons for judgment in these appeals: Esso Australia Resources Pty Ltd v Commissioner of Taxation [2011] FCAFC 154. The Court ordered the parties to confer and file minutes of orders (including as to costs) and, in the event of disagreement, to file and serve written submissions as to the parties' contentions. The parties have agreed on the orders which should be made save for the orders relating to some aspects of the costs of the proceedings. We will make orders in terms agreed between the parties. What follows are our reasons for resolving the matters which remain in dispute between the parties. These reasons should be read with the reasons for judgment published on 6 December 2011. 2 In relation to costs on appeal, the Commissioner proposes that, subject to any agreement between the parties, costs should be paid on an issues basis and that the costs of each issue should follow the event. The Commissioner contends that orders should be made to the effect that: 1. each co-venturer pay the Commissioner's costs in relation to Questions 1-9 in each set of proceedings. These costs would include the costs relating to the Commissioner's notices of contention on appeal; 2. each co-venturer pay the Commissioner's costs of Question 11 (the principal take-or-pay issue) in each set of proceedings; 3. the Commissioner pay each co-venturer's costs of Question 12 (the subsidiary take-or-pay issue) and Question 13 (the MLMDQ issue) in each set of proceedings. 3 In relation to the costs of the proceedings at first instance, the Commissioner proposes that the orders made by the primary judge be varied so that the Commissioner be ordered to pay the co-venturer's costs of Question 12. 4 The co-venturers disagree with these proposals only to the extent that they contend that the Commissioner should pay the co-venturers' costs of the Commissioner's notices of contention of 22 June 2011 and 23 June 2011, and of Question 11 (the principal take-or-pay issue). 5 The disposition of the costs of a proceeding is a matter within the discretion of the Court: s 43(1) of the Federal Court of Australia Act 1976 (Cth). Usually, that discretion is exercised on the basis that costs follow the event in the absence of special circumstances justifying some other order. There may be circumstances that make it reasonable that a litigant who has been only partly successful should bear the expense of litigating that portion of the case upon which it has failed. And a successful party who has failed on certain issues may not only be deprived of the costs of litigating those issues but may be ordered to pay the other party's costs of those aspects of the litigation. 6 The parties are broadly agreed that the costs of the appeal should be awarded on an issues basis. The matters in dispute do not reflect any disagreement in principle on this point but as to the application of this approach to the circumstances of this case. Costs of the Commissioner's notices of contention 7 The issues raised by the Commissioner's notices of contention were resolved broadly against the Commissioner. The Commissioner claims to have enjoyed some measure of success but that success was of no practical significance. 8 The issues agitated by the Commissioner arose in relation to the general issues the subject of Questions 1-9; but they were relatively minor points, and they could become live issues only if the co-venturers were successful in their principal contentions in respect of the construction of the Act in relation to those issues. It may be said that the Commissioner was entitled to raise these points in response to the co-venturers' appeals, but the agitation of these issues necessitated a consideration of evidence and arguments which need not otherwise have been addressed. 9 At first instance the primary judge did not deal separately with the costs associated with the argument of these issues. Rather, these costs were treated as part of the general issue raised by Questions 1-9. The Commissioner urges that this Court should adhere to that approach. 10 The Commissioner's argument fails to appreciate the difference between the position at first instance and on appeal. In agitating these issues again on appeal the Commissioner was assuming the burden of persuading this Court to set aside findings of fact which reflected the primary judge's careful evaluation of the conflicting evidence of the witnesses called by the parties. The Commissioner failed to discharge that burden. It is also fair to say that its prospects of doing so were not such as to warrant the time and attention expended on the issue especially given that there was no real likelihood that the basis on which the primary judge had resolved Questions 1-9 would be upset. 11 In these circumstances, we consider that the Commissioner should pay the co-venturers' costs of his notices of contention. Question 11 12 Question 11 concerned the treatment of the 1997 shortfall payment of $11,753,357.87 made pursuant to the "take-or-pay" provisions of the SECV Agreement. The co-venturers were unsuccessful, both at trial and on appeal, in arguing that this payment was not an assessable petroleum receipt for the purposes of s 24 of the Act. Nevertheless, they now submit that they should have their costs of this question, both at trial and on appeal, on the ground that Questions 11 and 12 should be treated as one issue for the purposes of costs and that they were was successful on appeal in relation to Question 12. 13 We reject that submission. Question 11 was the principal take-or-pay issue; Question 12 only arose if the co-venturers lost in relation to Question 11. The treatment of the 1997 shortfall payment (the subject of Question 11) effectively determined the treatment of the shortfall payments received in earlier years (the subject of Question 12) subject only to the effect of the transitional provision in relation to the 1987 and 1988 shortfall payments. It was the determination of the effect of the transitional provision which was the only substantial task raised by Question 12. 14 The analogy between the position of the co-venturers in relation to Questions 11 and 12 and the situation of a plaintiff in a negligence case who succeeds on one particular of a negligence claim, but not others, is not at all compelling. Questions 11 and 12 concerned different payments in different years; and as the resolution of Question 12 required consideration of the transitional provision, that was an entirely different legal issue from the issue involved in Question 11. 15 The parties have agreed that each co-venturer should have its costs of Question 12 as it was ultimately successful with respect to the transitional payments in issue. For our part, we see no basis for disturbing the order for costs made by the primary judge in relation to Question 11 or for making an order on appeal which does not recognise the Commissioner's success in relation to that question. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Keane and Justices Edmonds and Perram. Associate: Dated: 20 February 2012