FEDERAL COURT OF AUSTRALIA International All Sports Ltd v Commissioner of Taxation (No 2) [2011] FCA 1027 Citation: International All Sports Ltd v Commissioner of Taxation (No 2) [2011] FCA 1027 Parties: INTERNATIONAL ALL SPORTS LIMITED (ABN 32 066 967 502) v COMMISSIONER OF TAXATION SPORTSBET PTY LTD (ABN 87 088 326 612), INTERNATIONAL ALL SPORTS LIMITED (ABN 32 066 967 502) V COMMISSIONER OF TAXATION INTERNATIONAL ALL SPORTS LIMITED (ABN 32 066 967 502) v COMMISSIONER OF TAXATION File numbers: VID 962 of 2010 VID 963 of 2010 VID 185 of 2011 Judges: JESSUP J Date of judgment: 1 September 2011 Catchwords: PRACTICE AND PROCEDURE – Costs – Offer of compromise rejected – Offerors achieved more favourable outcome – Whether offerors' presumptive entitlement to indemnity costs arises in taxation appeals – Whether offer to settle for undifferentiated sum included interest – Whether order overriding offerors' presumptive entitlement to indemnity costs should be made – Relevance of insufficiency of information in offeree's hands – Whether offeree did have insufficient information – Whether subsequent consensus as to quantum made offer of compromise irrelevant – Relevance of offeree's position as statutory office holder performing functions in public interest. Legislation: Federal Court Rules (as in operation immediately prior to 1 August 2011) Cases cited: Bank of Western Australia Limited and Others v Commissioner of Taxation (1994) 55 FCR 233 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 Date of hearing: 15 August 2011 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 16 Counsel for the Applicant: Mr M Robertson with Mr A Broadfoot Solicitor for the Applicant: Ernst and Young Law Counsel for the Respondent: Dr P Bender Solicitor for the Respondent: Gadens Lawyers IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 962 of 2010 BETWEEN: INTERNATIONAL ALL SPORTS Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: JESSUP J DATE OF ORDER: 15 August 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The Federal Court Rules as in force immediately before 1 August 2011 apply to the determination of the applicant's application for indemnity costs in this proceeding. 2. The applicant's costs be taxed on the following bases: (a) costs incurred up to and including 15 April 2011, on a party and party basis; (b) costs incurred after 15 April 2011, on an indemnity basis. 3. Any notice of appeal against the making of orders 1 and 2 above, or either of them, be filed on or before the 21st day after the publication to the parties of the court's reasons for making those orders. 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 963 of 2010 BETWEEN: SPORTSBET PTY LTD (ABN 87 088 326 612) Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: JESSUP J DATE OF ORDER: 15 August 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The Federal Court Rules as in force immediately before 1 August 2011 apply to the determination of the applicant's application for indemnity costs in this proceeding. 2. The applicant's costs be taxed on the following bases: (a) costs incurred up to and including 15 April 2011, on a party and party basis; (b) costs incurred after 15 April 2011, on an indemnity basis. 3. Any notice of appeal against the making of orders 1 and 2 above, or either of them, be filed on or before the 21st day after the publication to the parties of the court's reasons for making those orders. 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 185 of 2011 BETWEEN: INTERNATIONAL ALL SPORTS LIMITED (ABN 32 066 967 502) Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: JESSUP J DATE OF ORDER: 15 August 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The Federal Court Rules as in force immediately before 1 August 2011 apply to the determination of the applicant's application for indemnity costs in this proceeding. 2. The applicant's costs be taxed on the following bases: (a) costs incurred up to and including 15 April 2011, on a party and party basis; (b) costs incurred after 15 April 2011, on an indemnity basis. 3. Any notice of appeal against the making of orders 1 and 2 above, or either of them, be filed on or before the 21st day after the publication to the parties of the court's reasons for making those orders. 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 962 of 2010 VID 185 of 2011 BETWEEN: INTERNATIONAL ALL SPORTS Applicant AND: COMMISSIONER OF TAXATION Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 963 of 2010 BETWEEN: SPORTSBET PTY LTD (ABN 87 088 326 612) Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: JESSUP J DATE: 1 SEPTEMBER 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 On 26 July 2011, when I gave judgment in these three taxation appeals – International All Sports Ltd v Commissioner of Taxation [2011] FCA 824 – I gave the parties liberty to apply on the question of costs. The applicants applied to have their costs taxed on an indemnity basis, to the extent that they were incurred after 15 April 2011. Those applications relied both upon O 23 r 11(4) of the Federal Court Rules (as in operation immediately prior to 1 August 2011) and upon the principles associated with Calderbank v Calderbank [1976] Fam 93. On 15 August 2011, I upheld the applicants' claims for indemnity costs. These are my reasons for having done so. 2 On 15 April 2011, the applicant in each proceeding made an offer of compromise, ostensibly pursuant to O 23 of the rules of court. In proceeding VID 962 of 2010, the offer was in the following terms: The Applicant hereby offers to settle all claims in this proceeding on the following terms: 1. The Respondent vary the decision made on 25 October 2010 by allowing in full the objection made by the Applicant on 2 July 2010 and by agreeing to pay to the Applicant by way of refunds in respect of the GST for the tax periods commencing on 1 November 2005 and ending on 30 September 2009, a total sum of $9,901,633 within 28 days of acceptance of this offer. 2. The proceedings be discontinued. 3. Each party shall bear their own costs of the proceedings. 4. The Applicant pay the Respondent $500,000 within 28 days of acceptance of this offer, which amount is to be offset against the refunds referred to in paragraph 1. This offer is made under Order 23 of the Federal Court Rules and remains open for acceptance for a period of 15 days from the date the offer is made. On the same date, in proceeding VID 185 of 2011, the applicant made an offer in the same terms as set out above, save that the dates corresponded to the tax periods to which that proceeding related, that the sum referred to in para 1 was $360,085 and that the sum referred to in para 4 was $20,000. On the same date, in proceeding VID 963 of 2010, the applicant made an offer in the same terms as set out above, save that the dates corresponded to the tax periods to which that proceeding related, that the sum referred to in para 1 was $7,956,271, and that the sum referred to in para 4 was $500,000. The offers were all rejected by correspondence dated 28 April 2011. 3 Although, in my orders made on 26 July 2011, I did not specify the amount of the refunds to which the applicants would now be entitled, it was common ground that, in each of the proceedings, the refund will exceed the amount for which the particular applicant offered to compromise the proceeding in question. In the circumstances, it is also common ground that, in each proceeding, the applicant in question has obtained a judgment not less favourable than the terms of the offer made by it on 15 April 2011. Thus, each applicant would be entitled, pursuant to O 23 r 11(4) of the rules of court, to have its costs taxed on an indemnity basis, to the extent that they were incurred after 15 April 2011. 4 The Commissioner, however, submitted that the court should make orders to override those entitlements. He did so on several grounds. The first was that O 23, as a whole, had no application in a proceeding by way of an appeal against an appealable objection decision pursuant to O 52B of the rules of court. The Commissioner relied upon O 52B r 3, which provided as follows: Subject to this Order and to any other law of the Commonwealth, the following provisions of Order 52A apply to an appeal against an appealable objection decision: rule 1, subrules 2 (2) and (3), rules 4, 5, 10, 13 and 14, and rules 17 to 24 (inclusive). The Commissioner then pointed to the terms of O 52A r 3, as follows: Subject to this Order and to any law of the Commonwealth, the provisions of this Order and other Orders of these Rules apply, so far as is practicable, to proceedings to which the last preceding rule applies and, for the purposes of this Order and other Orders of these Rules, the applicant and the Commissioner shall be parties to the proceedings. In the submission of the Commissioner, it was by reason of O 52A r 3 that the rules of court generally applied to proceedings of a kind covered by that order, and that rule was not within the catalogue of provisions that were, by O 52B r 3, applicable under O 52B. The submission was, in effect, that the provisions of O 52B, including those made applicable by r 3, amounted to a code, and they did not include the provisions of O 23. 5 The Commissioner accepted that this very submission had been made to Greenwood J in Clark v Commissioner of Taxation [2010] FCA 415, and rejected. Save to re-run the argument before me, counsel for the Commissioner did not draw attention to any particular respect in which his Honour had been in error. Unless I was persuaded that Greenwood J's judgment was clearly wrong, (Bank of Western Australia Limited and Others v Commissioner of Taxation (1994) 55 FCR 233, 255; Crvenkovic v La Trobe University [2009] FCA 374 at [11]), I was obliged to follow it. I was not so persuaded, and did, therefore, proceed on the basis that the provisions of O 23 had application to a proceeding by way of an appeal under O 52B. 6 The Commissioner's next ground was that the applicants' offers of 15 April 2011 did not comply with O 23 because they did not specify how much of the sums for which the applicants were prepared to settle constituted interest. 7 Order 23 r 4(2) provided as follows: (2) If: (a) a sum of money is offered; and (b) that sum is inclusive of interest; the notice of offer must specify the amount that is in respect of interest and how it is calculated. In the present case, the relief sought by the applicants in their originating proceedings included the refunds which were found to be their due, and such interest as was their entitlement under statute. The offers of 15 April 2011 made no reference to interest. It was submitted on behalf of the Commissioner that, in the circumstances, he was entitled to assume that the sums referred to in the offers would be in compromise of, amongst other things, the applicants' claims for interest. It followed, the Commissioner submitted, that the offers were inclusive of interest, and did not, therefore, comply with O 23 r 4(2). 8 I reject that submission. I was referred to no authority on the construction of this provision of the rules, in the absence of which I would hold that, in accordance with its ordinary meaning, O 23 r 4(2) was concerned with an offer which, in terms, was inclusive of interest. That is to say, it was concerned with an offer which necessarily required the addressee to know, or to calculate, how much the offeror proposed should be paid by way of interest. In the present case, the applicants made no proposal about interest in their offers of 15 April 2011 and had, therefore, no cause to "specify" the amount of those offers that was "in respect of interest". 9 The remaining grounds relied on by the Commissioner were discretionary ones. It was submitted that, at the time when the offers of compromise were made by the applicants, the Commissioner was possessed of insufficient information to enable him to make an informed response to the offers, and this insufficiency arose because of the applicants' default. The Commissioner relied upon the following passage from the judgment of Ashley J in Simonovski v Bendigo Bank Ltd (No 2) [2003] VSC 139, [18]-[19]: In my opinion it is important that, when an offer is made, and during the period when it remains open for consideration, the offeree then has in its possession all the material from the opposing party to which it is entitled, whether by operation of the Rules or by order of the Court. An offeree should not be obliged to consider an offer whilst ignorant of required detail of the offeror's case. In the present case the defendant was relevantly in default when its offer was made; and it continued in default throughout the period that the offer remained open. Moreover, the default was not trivial; rather, the contrary. Counsel for the defendant submitted that his client could have made its offer earlier, in which case the plaintiffs would not have been entitled to material to which they were entitled by late August 2002. True enough. But to say that because the defendant could have made an offer which the plaintiffs would have been obliged to consider without the advantage of having received particular material from the defendant is beside the point. The fact is that when the offer was made and throughout the period during which it remained open they were so entitled. There is no reason why an offeror which is in breach of rules or orders requiring it to provide information to the offeree should have the advantage of a Rule as to costs when the offeree by reason of the defendant's breach is less equipped than it should be to evaluate the offer. The contrary is the case. That is not to say, I emphasise, that such a failure to provide material will always justify an order otherwise. It will depend upon the circumstances of the particular case. The Commissioner accepted that, both at the date when the offers were made in the present case and for the whole of the period that the offers remained open, the applicants had not been in default under directions previously given by the court. He pointed out, however, that the applicants had been required to file their evidence by 31 March 2011 and had not done so. That may be so, but later orders made on 8 April 2011 gave the applicants a further period within which to file and serve their affidavits. Within that period, the applicants were not in default, and it was within that period that they made their offers of compromise. 10 It was not submitted that there was any general principle – ie absent default on the part of the offeror – entitling an offeree to the possession of all the information that might ultimately considered useful for the purpose of assessing an offer under O 23, and entitling the latter to an order excluding the operation of r 11(4) if such information were not forthcoming from the offeror. In a normal case, in order to secure costs, a successful applicant does not need to meet a submission from the unsuccessful respondent that he or she (the applicant) should have provided more information at an early stage of the case. Conventionally, a successful applicant will be entitled to his or her costs from the outset, even in relation to a period when the respondent may not yet have come into possession of information that is ultimately critical to the applicant's success. So too in the case of a proceeding in which an offer of compromise is made: a respondent who receives such an offer rejects it against the presumption that, if the applicant betters it at trial, he or she (the respondent) will pay the applicant's costs, from the date of the offer, on an indemnity basis. The principle which found favour with Ashley J in Simonovski applies only when an offeror seeks to take advantage of the relevant rules of court during a period when he or she was in default in his or her obligations to take steps in the proceeding. The principle has, in my view, no wider application than that. 11 I would add that there was, in the present case, never any substantial uncertainty as to the sums of money involved, or as to the applicants' entitlement to refunds approximating those sums if they should succeed on the question of construction which lay at the centre of the present case. In an email sent to the applicants by the Commissioner's solicitor on 29 March 2011, the latter confirmed that the Commissioner did not need "any further information from you on the figures". Although some minor adjustments to the figures ultimately agreed were subsequently made, the conclusion that, by the time the offer of compromise was made on 15 April 2011, the Commissioner was in possession of such information as would be required to enable him to assess the sufficiency of that offer is, I consider, an obvious one. 12 The Commissioner's next ground was that the agreement which the parties ultimately reached as to the amount 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, and effectively made the latter irrelevant. On 26 May 2011, the Commissioner proposed that the parties should agree on the quantum of any GST refunds to which the applicants would be entitled, if they succeeded in the proceeding. The applicants agreed with that proposal, and the actual sums to which the applicants were conditionally entitled was thereafter a matter of consensus. What was agreed on 26 May 2011, however, was not a compromise of the proceedings. The Commissioner still resisted the applicants' cases. Moreover, the sums to which the parties agreed on 26 May 2011 were more than those for which the applicants had offered to compromise the proceedings on 15 April 2011. Quite clearly, the events of 26 May 2011 had no capacity to undermine the conventional strength of the applicants' case for indemnity costs under O 23 r 11(4). 13 The Commissioner's final ground was that he maintained his defence in the present proceedings in the public interest, and that the point upon which I ruled against him was "a novel question of much general importance and some difficulty" (see Ruddock and Others v Vadarlis and Others (No 2) (2001) 115 FCR 229, 237 [17]). It was submitted, further, that the Commissioner was a statutory office holder whose obligations precluded him from settling litigation merely on the basis of expediency. While I recognise the force of these submissions insofar as they go, they do, in my view, fail to recognise that the applicants are ordinary trading companies which were obliged to litigate in order to recover substantial sums to which they were held to be entitled. The policy which underlies provisions such as O 23 r 11(4), in my view, speaks just as loudly in a case in which the party rejecting an offer of compromise is a statutory office holder such as the Commissioner. The rule implies no culpability or dereliction on the part of such a party: it merely gives appropriate recognition to the readiness of an applicant to settle for something less than is ultimately found to be his or her legal entitlement. There is no reason that I can see why a litigator in the position of the Commissioner should not be under the normal obligation to give such an offer the serious consideration which its terms may warrant. 14 There is a further circumstance which may not be wholly irrelevant to this ground. As I pointed out in para 19 of my reasons of 26 July 2011, it was originally a publication of the Commissioner himself which induced the applicants to calculate their net amounts by reference to what I have held was a mistake in view of the law. So far as I can see, the Commissioner was under no statutory obligation to make that publication. In the facts of the present cases, it was favourable to himself, in the sense that it caused the applicants to pay more by way of net amount than was their obligation. This circumstance, in my view, somewhat undermines the Commissioner's public interest case. 15 For the above reasons, on 15 August 2011 I made orders which reflected the conventional operation of O 23 r 11(4) of the Federal Court Rules. 16 I did not need to consider the applicants' cases to the extent that they relied on Calderbank. However, I should record the view I took of the matter, which was that the Commissioner's rejection of the offers of 15 April 2011 was not unreasonable: see CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75]. The point of construction on which the Commissioner failed in the case was a difficult and, it would seem, unexplored one. Particularly given the matters referred to in para 13 above, it was not, in my view, unreasonable for the Commissioner to insist that that point be resolved by the court. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup. Associate: Dated: 1 September 2011