FEDERAL COURT OF AUSTRALIA Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd (No 2) [2017] FCAFC 46 Appeal from: Normandy Finance Pty Ltd v Commissioner of Taxation [2015] FCA 1420 Pilmora Pty Ltd as Trustee of the Townsing Family Trust and Commissioner of Taxation [2015] AATA 976 File number(s): NSD 145 of 2016 NSD 146 of 2016 NSD 150 of 2016 Judge(s): LOGAN, JAGOT AND DAVIES JJ Date of judgment: 21 March 2017 Catchwords: COSTS – apportionment of costs of appeal – costs below remitted Legislation: Income Tax Assessment Act 1936 (Cth) Cases cited: Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180 Hockey v Fairfax Media Publications Pty Ltd (No 2) [2015] FCA 750; (2015) 237 FCR 127 Date of hearing: Heard on the papers Date of last submissions: 3 March 2017 Registry: New South Wales Division: General Division National Practice Area: Taxation Category: Catchwords Number of paragraphs: 7 Counsel for the Appellant: Mr D McGovern QC with Ms J Jaques Solicitor for the Appellant: Australian Government Solicitor Counsel for the Respondents: Mr S Steward QC with Mr D McInerney and Mr J Hyde Page Solicitor for the Respondents: Pricewaterhousecoopers ORDERS NSD 145 of 2016 BETWEEN: COMMISSIONER OF TAXATION Appellant AND: NORMANDY FINANCE AND INVESTMENTS ASIA PTY LTD ACN 087 622 768 First Respondent ADVANT PTY LTD Second Respondent PILMORA PTY LTD AS TRUSTEE OF THE TOWNSING FAMILY TRUST (and another named in the Schedule) Third Respondent JUDGES: LOGAN, JAGOT AND DAVIES JJ DATE OF ORDER: 21 march 2017 THE COURT ORDERS THAT: 1. The proceeding be remitted for further hearing and determination in accordance with the reasons for judgment of the Full Court delivered on 16 December 2016 in respect of the objection decisions of the appellant relating to Normandy Finance and Investments Asia Pty Ltd for the years ended 31 December 2007 to 2009 inclusive. 2. The appellant's objection decisions in respect of the objections of Advant Pty Ltd for the years ended 30 June 2002 and 2003 be affirmed. 3. The orders for costs in respect of the hearing below be set aside and the issue of costs below also be remitted for further hearing and determination. 4. The respondents pay 80% of the costs of the appellant in the appeal, as agreed or taxed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. ORDERS NSD 146 of 2016 BETWEEN: COMMISSIONER OF TAXATION Appellant AND: NORMANDY FINANCE AND INVESTMENTS ASIA PTY LTD ACN 087 622 768 First Respondent ADVANT PTY LTD Second Respondent HENRY GEORGE TOWNSING Fourth Respondent JUDGE: LOGAN, JAGOT AND DAVIES JJ DATE OF ORDER: 21 March 2017 THE COURT ORDERS THAT: 1. The objection of Pilmora Pty Ltd as Trustee for the Townsing Family Trust (Pilmora), in reliance on former s 98(4) of the Income Tax Assessment Act 1936 (Cth) (the Act), for the years ended 30 June 1994 be set aside and in lieu thereof it be ordered that the objection be allowed in part only insofar as it arises from the inclusion of the sum of $1,784,450 in the net income of Pilmora and the matter be remitted to the appellant to reassess accordingly. 2. The objection decisions of the appellant in respect of the objections of Pilmora as Trustee for the Townsing Family Trust for the years ended 30 June 1995 to 1997 inclusive, in reliance on former s 98(4) of the Act, be affirmed. 3. The objection decisions of the appellant in respect of the objections of Henry Townsing for the years ended 30 June 2000 to 2009 inclusive be affirmed. 4. The orders for costs in respect of the hearing below be set aside and the issue of costs below also be remitted for further hearing and determination. 5. The respondents pay 80% of the costs of the appellant in the appeal, as agreed or taxed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. ORDERS NSD 150 of 2016 BETWEEN: COMMISSIONER OF TAXATION Appellant AND: GAYNOR PATRICIA TOWNSING First Respondent HENRY TOWNSING Second Respondent EDWARD TOWNSING Third Respondent JUDGE: LOGAN, JAGOT AND DAVIES JJ DATE OF ORDER: 21 march 2017 THE COURT ORDERS THAT: 1. The objection decisions of the Commissioner in respect of the objections of the respondents are affirmed. 2. The respondents pay 80% of the costs of the appellant, as agreed or taxed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT THE COURT: 1 On 16 December 2016 we published reasons for judgment in which Jagot and Davies JJ explained why they would allow the appeals (at least in part) and Logan J explained why he would dismiss the appeals (see Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180). Pursuant to the orders made on 1 February 2017 resulting from the reasons of Jagot and Davies JJ, the parties conferred and have agreed the terms of the orders which ought to be made consequential upon those reasons other than in respect of the issues of the costs below and on appeal. 2 The orders set out above reflect the orders as agreed between the parties and the view we have reached that the issue of the costs of the matters below ought to be remitted for further consideration by the judge who is allocated the matters as a result of the remittal orders (the primary judge having since retired) and that the respondents should pay 80% of the appellant's costs of the appeal. 3 We do not accept the Commissioner's submission that the respondents unnecessarily prolonged the hearing at first instance and increased the Commissioner's costs by running a case on the basis of falsehoods and reconstruction. The principal case which the respondents ran ought not to have succeeded, as Jagot and Davies JJ found. But the purpose of an order for costs is not to punish a party who runs an unsuccessful case. The purpose is to compensate the successful party. In any event, our review of the materials which were before the primary judge indicate that the Commissioner also ran the case in a manner which had the no doubt unintended but still very real effect of substantially increasing the burden on the primary judge and extending the hearing time required, and thereby increasing the costs of all parties. 4 In any event, as we have said, the issue is not one of punishment for conducting litigation inefficiently, a charge of which both parties might be accused in these matters without unfairness to either. The issue is appropriate orders to reflect the compensatory purpose of costs. 5 While it is true that the Commissioner has largely succeeded in the appeals we consider that the issue of costs below is best determined after all issues have been resolved including those issues remitted for further consideration. The potential prejudice to the Commissioner, delay in the resolution of costs orders which are likely to be in the Commissioner's favour to a greater extent than not, is not a sufficient reason for us to attempt to formulate an appropriate orders for costs when issues remain outstanding. As the respondents submitted, making a single decision in relation to costs is the most efficient way to deal with the issue. It is also the most appropriate way, because all relevant circumstances will then be able to be taken into account. 6 Insofar as the costs of the appeals are concerned, we are satisfied that this is a case in which, despite having effectively succeeded on most of the important issues, the respondents should be ordered to pay 80% only of the Commissioner's costs. We do not need to repeat the things that were said in the majority judgment of Jagot and Davies JJ. It ought to be apparent from the majority's reasons that the Commissioner's conduct of the appeals, in common with the conduct of the hearing below, imposed a substantial burden on the Court (and thus, inevitably, the respondents) which was unnecessary. Had the Commissioner focused on the real issues in the appeals, the appeals would not have extended over three days and would not have placed such a burden on the Court or the respondents. We can see no reason why the Commissioner should obtain an order for the whole of his costs to be paid (subject to taxation) in circumstances where, by his own lack of focus and inefficiency, the Commissioner has expended and incurred more costs than the appeals reasonably warranted. 7 We consider that this is a matter where encouragement of litigants to "exercise some discrimination in… [the] selection of claims" to be litigated (Hockey v Fairfax Media Publications Pty Ltd (No 2) [2015] FCA 750; (2015) 237 FCR 127 at [88] per White J) is properly reflected in an order reducing the costs to which the Commissioner should be entitled. The Commissioner not only failed on some issues, but also conducted the appeals in a manner which involved unnecessary complexity, as a result increasing his own and the respondents' costs. While the extent to which the order for costs in the Commissioner's favour should be adjusted inevitably involves a rough and ready estimation of what is fair in all of the circumstances, we consider the respondents' suggestion of a 30% reduction somewhat excessive. We consider that a 20% reduction to reflect the concerns we have identified is sufficient, which means that the respondents should be ordered to pay only 80% of the Commissioner's costs of each appeal. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Logan, Jagot and Davies. Associate: Dated: 21 March 2017 SCHEDULE OF PARTIES NSD 145 of 2016 Respondents Fourth Respondent: HENRY GEORGE TOWNSING