FEDERAL COURT OF AUSTRALIA BHP Billiton Petroleum (Bass Strait) Pty Ltd v Commissioner of Taxation [2002] FCA 762 COSTS – respondent successful on principal issues raised on tax appeals – subsequent calculation of quantum of assessments reduced quantum from pre-hearing level – reduction on account of price redetermination not relevantly the subject of submissions at hearing – whether order for costs in favour of respondent or applicants – whether order for costs ought include provision for reimbursement for preparation of affidavits relevant to calculation of quantum BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA VG 478-493 OF 1998 ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA VG 494-516 OF 1998 KENNY J 14 JUNE 2002 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 478 OF 1998 VG 478 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 479 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 480 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 481 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 482 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 483 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 484 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 485 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 486 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 487 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 488 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 489 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 490 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 491 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 492 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 493 OF 1998: BETWEEN: BHP BILLITON PETROLEUM (BASS STRAIT) PTY LTD (ACN 004 228 004) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 494 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 495 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 496 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 497 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 498 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 499 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 500 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 501 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 502 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 503 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 504 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 505 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 506 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 507 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 508 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 509 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 510 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 511 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 512 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 513 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 514 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 515 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent VG 516 OF 1998: BETWEEN: ESSO AUSTRALIA RESOURCES LTD (ARBN 000 444 860) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: KENNY J DATE: 14 JUNE 2002 PLACE: MELBOURNE REASONS FOR JUDGMENT ON COSTS introduction 1 Reasons for judgment ("the reasons") were delivered in these 39 appeals on 5 March 2002. In the reasons, I noted that, on the hearing of the appeals, the parties invited the Court to resolve the question of principle raised by the facts agreed between them: see [2002] FCA 189 at [49]. The parties agreed that the Court's decision would determine the correct basis for the computation of tax, and that they should be left to work out the consequences of the decision for each of the assessments in issue. In conformity with this approach, I invited the parties to submit minutes of orders that gave effect to the reasons. Bearing in mind the number of the appeals with which the Court is concerned and that they involve two separate taxpayers, it is, perhaps, not surprising that the parties required more than the fourteen days first contemplated by me to formulate their positions. background to the remaining dispute 2 Despite some initial disagreement, prior to the hearing on 22 May 2002, the parties were apparently agreed that, in all proceedings except VG 488, VG 489, VG 494, VG 495, and VG 496, the Court should order: 1. The Applicant's appeal be dismissed. 2. The assessment be remitted to the Respondent to be amended (if necessary) in accordance with the reasons for judgment given on 5 March 2002. 3. The Applicant pay the Respondent's costs of the appeal. There was no disagreement concerning the orders to be made in VG 488 and VG 494: see below, at [3]-[4]. The disagreement apparently concerned the orders to be made in VG 489, VG 495, and VG 496: see below, at [5]-[6]. At the hearings on 22 May and 23 May 2002 (also referred to below) the parties' positions changed, and only the agreement with respect to the orders in VG 488 and VG 494 was maintained. 3 As at 22 May 2002, in proceeding VG 488, the parties proposed: 1. The Applicant's appeal be allowed. 2. The assessment in issue be amended by reducing the assessable income of the Applicant by $36,083,766. 3. The Respondent pay the Applicant an amount equal to the costs or fees attributable to this proceeding. Otherwise there be no order as to costs. 4 Also on that day, in proceeding VG 494, they proposed: 1. The Applicant's appeal be allowed. 2. The assessment in issue be amended by reducing the assessable income of the Applicant by $18,190,656. 3. The Respondent pay the Applicant an amount equal to the costs or fees attributable to this proceeding. Otherwise there be no order as to costs. The parties remain in agreement that orders in the above form should be made in proceedings VG 488 and VG 494 of 1998. 5 These matters came before me on 22 May 2002 for final oral submissions on the remaining issues in dispute. At the time, it seemed to me that the principal issue concerned the orders to be made in conformity with the reasons in matters VG 489, 495 and 496 of 1998. In written submissions filed on 17 April 2002, the respondent submitted as follows: 3. The assessment of Esso in issue in proceeding VG 496 amended the assessment in issue in proceeding VG 495 by increasing its assessable income following its advice to the Respondent that the pass on amounts were higher than originally assessed. Esso's objection to the assessment in issue in proceeding VG 496 related only to that increase in its assessable income. 4. … In these cases it would be appropriate for the Court to order in each proceeding that the appeal be dismissed with costs and: 4.1 In proceeding VG 489 of 1998 that the assessment in issue be amended by increasing the Applicant's assessable income by adding to the amount that would otherwise be assessable in accordance with the reasons for judgment the amount of $36,083,766; and 4.2 In proceeding VG 496 of 1998 that the assessment in issue in proceeding VG 496 be amended by adding to the amount that would otherwise be assessable in accordance with the reasons for judgment the amount of $18,190,656. 6 The applicants opposed the making of orders in this form, and submitted that each assessment should be remitted to the Commissioner to be amended (if necessary) in accordance with the reasons. Amongst other things, the applicants contended that the Court did not have the power, in these proceedings, to order an increase in an assessment. Following a discussion in court on 22 May 2002, the respondent determined not to continue to seek these contested orders. 7 In order to explain how yet another issue arose (and now falls for consideration) it is necessary to refer to another subject that arose on 22 May 2002. At the outset of the hearing on 22 May 2002, senior counsel for the applicants referred to matters concerning the Huntsman and Kemcor disputes, although, in answer to a question from me, he said: It doesn't concern your Honour now if my learned friend agrees that the amounts in relation to Huntsman and Kemcor which were not paid and were referred to in our submissions will not be brought to account as assessable income. 8 Senior counsel for the respondent immediately informed the Court as follows: If your Honour pleases, that's the way we put it. The Huntsman-Kemcor matter was alluded to briefly in argument and two affidavits were filed, one by Mr Yencken and the other by Mr Vine, but my recollection is that there was no argument about the issue. It's simply something that we are reminded by our learned friends. We do not contend that there should be an assessment for amounts that were never received. It was agreed, for various reasons, that the amount payable for a period from I think 1991 to the end of 94, that we would accept the amount of the global adjustment that was made between the parties by an agreement which took into account two factors: (1) the introduction of PRRT; second, the decline in the buyer's business involving the use of the materials sold, which triggered a right under the sales contracts to ask for a reconsideration of the price. In the settlements both matters were accepted, one on each side, but a global amount was agreed as an adjustment. We accept that the amount that was agreed should be taken into account in any amendment of the assessments for the relevant years. It won't be a global amount for one year; it will be spread over three tax years. We don't have the figures, but we're not dealing with figures in the order, and we simply accept as a matter of principle that that would be done when the reassessment is made. That would necessitate reassessment, so in a formal sense it would I think necessitate those appeals being allowed. [Emphasis added] The respondent did not demur to the applicants' statement that they assumed that "the same agreement applies in relation to the PRRT assessment[s] as well as the income tax assessments". 9 Responding to my request that the parties identify the particular proceedings affected by the Huntsman-Kemcor considerations, the respondent's counsel said: That can easily be done by a memorandum which will be sent in if it can't be done by close of play tonight, your Honour. The funny thing is that the figures for Huntsman and Kemcor are comparatively small and the existence of those contracts was virtually ignored in the course of argument, and we concentrated upon the two major utility contracts. By the end of the hearing on 22 May 2002, the parties were, therefore, apparently in agreement as to the orders that should be made in conformity with the reasons delivered on 5 March 2002. They were to return the next day, 23 May 2002, with some uncontentious details in order that final orders might be made. 10 When the parties appeared in court the next day, however, they were again in dispute – this time on a question of costs. The catalyst for the disagreement was, it seems, the respondent's counsel's statement the previous day that the appeals ought formally to be allowed. The applicants contended that, in this event, they were entitled to the benefit of costs orders against the respondent. They submitted, in the alternative, that there should be no order as to costs. Save for proceedings VG 488 and VG 494, the respondent maintained his position that he was entitled to costs orders against the applicants. 11 After hearing the parties, it seemed to me that, since the issue had arisen without much (if any) notice, then, in the interests of fairness, the parties should have an opportunity to file written submissions (perhaps, supported by evidence) notwithstanding the further delay in making final orders that this would entail. 12 The applicants filed written submissions on costs on 28 May 2002 and the respondent, on 30 May 2002. The respondent supported his submissions with an affidavit of Mr Vincent Daniele Tavolaro, solicitor, sworn on 30 May 2002. parties' submissions as to costs 13 As noted above, the parties are agreed that, in each of VG 488 and VG 494 of 1998, the Court should make orders in the terms set out in [3] and [4] above. I shall not discuss the orders to be made in these two proceedings further. 14 The parties concur that, in proceedings VG 478 to 487, 489 to 493 and 495 to 516 of 1998, an order should be made allowing the appeals. The applicants maintain that they have been successful in each of these appeals and that costs should follow the event. They submit, in the alternative, that there should be an order that the respondent pay 10% - 20% of their costs of the appeal. In support of the latter contention, the applicants submit that what they termed "the Huntsman/Kemcor issue" required "a substantial amount of preparation in anticipation of the hearing, in the order of 10% - 20%". As a fallback, they submit that, if the Court is not minded to make orders in either form, then there should be no order as to costs. In their written submissions, the applicants contend: That the Huntsman/Kemcor issue was significant can be demonstrated by reference to the frequency with which it was referred to in the Statement of the Agreed Facts, the parties' written and oral submissions, the affidavits of Michael Yencken and John Vine, and the expert witness report prepared by Professor Walker. According to the applicants, their success in connection with the Huntsman/Kemcor issue led the respondent to accept that the appeals should be allowed. 15 The respondent's primary position is that the applicants should be ordered to pay his costs of the appeals. He submitted, in the alternative, that, in addition to a costs order in his favour, there should be an order that the respondent pay the applicants' costs of and incidental to the affidavits of Michael Yencken and John Vine. consideration of the submissions 16 There is no dispute about the general principle, namely, that costs ordinarily follow the event. What, however, is the event in each appeal? In the circumstances of these proceedings, there are at least three possibilities, namely: (1) the outcome of the principal issues in dispute on the appeals; (2) the result of the appeals; and (3) the consideration that affected the calculation of quantum. As appears below, in these proceedings, each of the above might be seen as a different "event". Principal issues in dispute on the appeals 17 At [12]-[13] of the reasons, I identified the issues in dispute on the appeals as follows: The issue at the centre of the current proceedings is whether the Commissioner erred in including in his assessments of assessable income and assessable receipts certain amounts to which the sellers were entitled under cl 12.8 of the GFC Contract (or cl 19.5 of the SECV Contract and the equivalent provisions of other Supply Contracts) because of the changes in tax liability introduced by the [Petroleum Resource Rent Legislation Amendment Act 1991 (Cth)]. In respect of this it was accepted by the parties that, in the particular circumstances of the present case and for the purpose of these proceedings, the operation of the concepts of 'income derived' and 'consideration receivable' under the ITAA and PRRT Act respectively were not materially different. The parties accepted that the Court's findings in respect of the former should apply in respect of the latter. Accordingly, save where the contrary is indicated, I refer below only to the ITAA. Thus, the Commissioner's case was based on the proposition that the amounts claimed in the pass-on letters and invoices (terms explained below) were (1) income derived by the sellers when they supplied the gas (or ethane) and (2) the consideration receivable for the gas (or ethane) since these amounts constituted part of the price charged for the products. For the reasons set out below, the sellers contested these propositions. Before considering the central issue, it is necessary to give some further explanation of the events following the Federal Government's announcement of the changes that were to be made to the secondary tax regime. The sellers' case was largely that these events – including the disputes that arose between the sellers and the buyers about the impact of the Amendment Act on the Contract Price payable by the buyers – rendered any entitlement on the sellers' part to an increase in the Contract Price non-assessable for tax purposes, at least until the disputes had been finally resolved. This resolution, so the sellers said, came with the settlements in 1996 (for the GFC and SECV Contracts) and in 1994 (for the remaining Supply Contracts). The result (so it was said) was that only the amounts received by the sellers under the terms of such settlements were assessable for income tax and PRRT purposes. [Emphasis added] 18 At [58] of the reasons, I observed: As we have seen, these proceedings called into question the proper approach for assessing the pass-on amounts for income tax (and PRRT) purposes. So far as income tax is concerned, there are two aspects to this: first, assuming the amounts were income in the hands of the sellers, when was that income derived by them? Secondly, by reference to what matters is the value of the pass-on amounts and hence the quantum of income to be ascertained? As already noted, the parties conducted the proceedings on the basis that the answers to these questions would also determine the PRRT issues. See also the reasons, at [45]-[46], [50]-[51], [55] and [61]. 19 For the reasons given, I held, at [117], that the applicants had not shown that the respondent erred in treating the pass-on amounts paid by the buyers as part of the Contract Price under the Supply Contracts as income derived by them on the date of delivery. Nor had the applicants shown that the respondent erred in treating them as the "consideration receivable" for PRRT purposes. 20 As the reasons demonstrate, the applicants were unsuccessful on the principal issues in dispute on the appeals. As a consequence, one might have expected that the appeals would be dismissed (save in proceedings in VG 488 and 494, to which special considerations apply). Up until the hearing on 22 May 2002, this was apparently the parties' understanding. The result of the appeals 21 The applicants appealed to the Court pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth). By virtue of s 14ZZO(b) of that Act, the applicants had the burden of proving that the assessments and amended assessments were excessive. Reference to the reasons shows that they did not discharge this burden on the basis of the principal case that they advanced at the hearing of the appeals. Why then do the parties maintain that the appeals should be allowed? 22 As indicated above, at the outset of the hearing, the Court was informed that the parties were agreed that the quantum of the assessments would not be determined until after the Court had delivered its reasons for judgment. In calculating the quantum after the delivery of the reasons, the respondent accepts, as counsel for the respondent made clear on 22 and 23 May 2002, that the relevant assessments and amended assessments are excessive and that, on this account, the appeals ought to be allowed. 23 The parties agree that this conclusion is reached on account of considerations affecting the Huntsman and Kemcor Supply Contracts. As noted at [20] of the reasons, some buyers, including Huntsman and Kemcor, sought a redetermination of the Contract Price under the Supply Contracts to which they were party. Save for the s 63 issue (referred to below) the matter of the price redetermination was not the subject of argument on the appeals. The parties agree, however, that the price redeterminations affect the calculation of the quantum of the assessment. 24 In written submissions filed 17 May 2002, the applicants outlined the circumstances supporting this conclusion. (These circumstances are also contained in the Statements of Agreed Facts and the affidavits of Messrs Vine and Yencken.) At pars 9-13 of these submissions, the applicants said: Although the parties have to a large degree resolved issues about the calculation of assessable amounts based on the reasons for judgment there is one significant area of disagreement. This concerns the Huntsman and Kemcor contracts. It will be recalled that unlike the disputes with the two principal buyers each of Huntsman and Kemcor sought a price re-determination. In the case of Huntsman, while the new price was being negotiated Esso continued to invoice on the basis of the original price but Huntsman paid a lesser amount. The price redetermination dispute was settled by the payment by Huntsman of an additional $3,500,000 over and above what it had paid. There was a difference of $6,388,415.30 between the amount invoiced and the amounts agreed between the parties to be payable for the gas, as a result of the price redetermination agreement. We do not understand her Honour's reasons to lead to the conclusion that this sum of $6,388,415.30 is to be included in Esso's assessable income or that if it is to be included in assessable income Esso should be denied a corresponding deduction under s 51(1) for a loss of a similar amount. … . Although the new price to be paid by Huntsman for the ethane was agreed in principle as at about April 1995 (see Yencken Affidavit at para 9) and as Hunstman paid on the basis of the new price Esso continued to invoice on the basis of the old price until the settlement deed and new supply contract was executed. The difference between the new price paid by Huntsman and the amounts invoiced until the new supply contract was executed was $6,767,207 which was of course never received and was not payable. We do not interpret her Honour's reasons as suggesting that anything exceeding the newly agreed price should be part of Esso's assessable income. The same issue arises in relation to the resolution of the Kemcor price redetermination. The resolution of this dispute resulted in $2,622,829.50 of invoiced amounts not being recovered. We do not understand her Honour's reasons to suggest that this amount is part of the price of the gas which was derived by Esso. If it was, there would clearly need to be a deduction under s 51(1) when the dispute was settled. The same issues arise in relation to the price redetermination disputes between Huntsman and BHP: see Affidavits of J Vine. On settlement of Huntsman's price redetermination dispute with BHP there was $6,523,620.97 which had been claimed by letters of demand but which was not paid. We do not understand her Honour's reasons to suggest that this amount was derived by BHP as assessable income. If it was derived as assessable income there should have been a deduction under s 51(1) for a corresponding amount upon settlement of the dispute. 25 When counsel for the respondent said, on 22 May 2002, "that's the way we put it", he was acceding to the proposition that the differences between amounts invoiced and the amounts agreed between the parties to be payable for the gas in consequence of the price redetermination agreements were not to be included in the applicants' assessable income. The respondent takes the view that this is the result of the application of the reasons. 26 At the adjourned hearing, on 23 May 2002, counsel for the respondent explained (correctly, as it seems to me) that: There was no concession last night [on 22 May 2002]. What my learned friend's comments portray is a confusion between what the commissioner agreed to last night and the significance of this particular issue in the context of the question which your Honour had to address, namely, when was the income derived. It's our submission that what the commissioner did last night was to agree to no more than in determining the amount to be assessed on the delivery basis, one should have regard to the price which was actually, ultimately agreed to be paid. [Emphasis added] 27 In his subsequent written submissions, the respondent said: The reason that the Respondent agreed that the appropriate order was that these appeals be allowed was that the amounts assessed were excessive because of the differences between the amounts invoiced and those agreed to be payable. The evidence of the amount of the differences is to be found in the Vine and Yencken affidavits and accordingly the Respondent should pay the costs of preparation of these affidavits. [Emphasis added] The consideration that affected the calculation of quantum 28 As already stated, the applicants' submission was that "the Huntsman/Kemcor issue" was a significant one that "required a substantial amount of preparation … in the order of 10% -20%". I note that this quantification was not supported by evidence and that the applicants relied, instead, on the frequency with which the so called "Huntsman/Kemcor issue" was mentioned in the Statements of Agreed Facts, submissions, the affidavits of Messrs Vine and Yencken, and the expert witness report prepared by Professor Walker. 29 In order to evaluate the applicants' submission, it is necessary briefly to examine the conduct of the proceedings. Apparently at the applicants' initiative, the parties presented their cases upon the basis of Statements of Agreed Facts. In his affidavit, Mr Tavolaro deposed: At the first Directions Hearing on 4 November 1998, counsel appearing for the Applicants informed the Court that an adjournment of the Directions Hearing was sought so as to facilitate the preparation by the Applicants of a Proposed Statement of Agreed Facts. The Directions Hearing was adjourned to 3 February 1999 and subsequently thereafter to facilitate the consultative process between the parties with regards to the Proposed Statement of Agreed Facts. A Statement of Agreed Facts in respect of each applicant was filed in the Court on 28 June 2000. As the applicants observe in their written submissions, each Statement set out, amongst other things, the facts relating to each buyer (including Huntsman and Kemcor) with whom they had Supply Contracts. 30 Although the Statements of Agreed Facts covered many pages, the facts set out in connection with the Supply Contracts served to demonstrate that the six relevant Contracts were identical in all respects material to the principal issues raised on the appeals. As a consequence, the parties largely restricted their submissions to the Supply Contracts involving the applicants and the GFC or SECV. 31 There was no "Huntsman/Kemcor issue" issue (as the applicants would have it) raised as such in the hearing of the appeals. In the main, counsel for the applicants relied on matters connected with the Huntsman and Kemcor dispute in order to make a point in support of the applicants' case that derivation was at settlement of the disputes between them and the buyers. The point that counsel sought to make was that s 63 of the Income Tax Assessment Act 1936 (Cth) would not permit any pass-on amount debts, which were extinguished in consequence of settlement, to be treated as "bad" for tax purposes. This, so the applicants submitted at the hearing, militated against acceptance of the respondent's case. 32 As counsel for the applicants said on 23 May 2002: The way in which [the] affidavits [of Messrs Vine and Yencken] were referred to by my leader was to bring to your Honour's attention the ridiculousness of the Commissioner's position in relation to section 63 and the bad debt position. Counsel later said: [W]e did use the Huntsman-Kemcor point to try and illustrate to your Honour that the commissioner's case overall was unfair to the extent to which he sought to tax us on amounts that we had not received. 33 As the reasons show, the applicants were unsuccessful in this submission. I did not accept the point that they sought to make about s 63: see the reasons, at [104]. 34 I reject the submission made by the applicants' counsel on 23 May 2002, that "we might well have run our case very differently if we had have known the commissioner would have conceded this point because it would have underlined – as we argued in our case – that his position in relation to derivation was that unreasonable". The applicants' position has always been that the respondent's position was unreasonable. This is not altered by the fact that the respondent accepts that the quantum of the assessments should be recalculated, having regard to the reasons and the price redeterminations in relation to Huntsman and Kemcor. Further, I reject the submission that the frequency with which Huntsman and Kemcor were mentioned in submissions should constitute a basis for justifying an award of costs in the applicants' favour. 35 I also reject the applicants' submission that Professor Walker's examination of the Huntsman and Kemcor dispute assists them in their application for costs. On the hearing of the appeals, the applicants relied on Professor Walker's opinion to show that matching the disposal of the gas and ethane under the Supply Contracts to the derivation of income from the disposal resulted in an incorrect representation of their trading position. As I stated at [115]-[116] of the reasons, I was not persuaded that Professor Walker's expert opinion assisted the Court since it was premised on a mistaken assumption. 36 Mr Vine deposed that the purpose of his affidavit was to explain the Huntsman dispute "in more detail". Mr Yencken deposed to the same purpose in relation to each of the Huntsman and Kemcor disputes. This was necessary because, according to Mr Yencken, "each of those disputes was not only a dispute about passing on PRRT but a price redetermination as well". In answer to an inquiry from the respondent's solicitor, the applicants' solicitors also stated, in a letter dated 10 November 2000, that the purpose of the affidavits of Messrs Vine and Yencken was "to demonstrate the fact that in dealings between Sellers and Huntsman and Kemcor respectively, Sellers had rendered standard monthly invoices and pass-on invoices or letters which exceeded the amounts they were paid in settlement of the dispute between them, and were thereafter not entitled to recover the difference". 37 I have referred already to the use made by the applicants on the hearing of the appeals of the details set out in the affidavits of Messrs Vine and Yencken. As already stated, this use does not justify an award of the costs of the appeals against the respondent and in favour of the applicants. 38 The use that the applicants make of these affidavits on the present costs application is different from the use made at hearing. They now rely on the affidavits in relation to the calculation of the quantum of the assessments. This was a task that the parties agreed from the outset of the hearing should await the delivery of the reasons for judgment. If the approach adopted in the reasons is correct, the issues raised by these appeals would have fallen for determination, regardless of when the respondent took into account the price redeterminations. 39 Orders in the respondent's alternative form would reflect the fact that the respondent has been successful on the principal issues in dispute on the appeals, although having regard to the reasons and to the price redetermination considerations affecting Huntsman and Kemcor, the respondent is satisfied that the quantum of the assessments should be recalculated. The applicants have borne the expense of preparing the affidavits that have led the respondent to accept this position. In the peculiar circumstances of the case, the fact that, having made this calculation, the respondent is of the view that the appeals should be allowed does not lead to a different result. 40 For the reasons given, in each of proceedings VG 478 to 487, 489 to 493 and 495 to 516 of 1998, I would order that: (1) the appeal, made by application pursuant to O 52B, r 4 of the Federal Court Rules, be allowed; (2) the appealable objection decision of the respondent be set aside only to the extent necessary to give effect to the reasons for judgment delivered 5 March 2002; (3) the applicant pay the respondent's costs of the appeal; (4) the respondent pay the applicant's costs of and incidental to the preparation of the affidavits of Michael David Martin Yencken sworn on 3 July 2000 and John Vine sworn on 30 June 2000 and 17 July 2000. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. Associate: Dated: 14 June 2002 VG 478-516 of 1998: Counsel for the Applicant (all matters): Mr J W de Wijn QC with Mrs J Batrouney SC Solicitor for the Applicant (all matters): Middletons Counsel for the Respondent (all matters): Mr J D Merralls QC with Mr T Murphy Solicitor for the Respondent (all matters): Australian Government Solicitor Dates of Hearing: 22 and 23 May 2002 Date of Judgment: 14 June 2002