FEDERAL COURT OF AUSTRALIA McGlinn v Commissioner of Taxation (No 2) [2018] FCA 1503 File number: WAD 171 of 2016 Judge: STEWARD J Date of judgment: 9 October 2018 Catchwords: PRACTICE AND PROCEDURE – remittal to Commissioner of Taxation – evidence to be considered on remittal – costs – where 28 affidavits filed by the applicant were not read at trial Legislation: Income Tax Assessment Act 1936 (Cth) s 170 Income Tax Assessment Act 1997 (Cth) ss 35-10, 35-55 Cases cited: Harman v Secretary of State for the Home Department [1983] 1 AC 280 Date of hearing: 25 July 2018 Date of last submissions: 7 September 2018 Registry: Western Australia Division: General Division National Practice Area: Taxation Category: Catchwords Number of paragraphs: 10 Counsel for the Applicant: Mr J Fickling Solicitor for the Applicant: Hayes Legal Counsel for the Respondent: Ms C Thompson Solicitor for the Respondent: Australian Government Solicitor ORDERS WAD 171 of 2016 BETWEEN: ROBYN MCGLINN Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: STEWARD J DATE OF ORDER: 9 October 2018 THE COURT ORDERS THAT: 1. The application be allowed and the matter be remitted to the respondent for reconsideration in accordance with law. 2. The respondent pay the applicant's costs of and incidental to the proceedings save that: (a) the respondent shall pay only 50% of the costs thrown away by the applicant in preparing the 20 affidavits upon which she intended to rely as from 28 November 2017; (b) the respondent shall not pay the costs thrown away by the applicant in preparing the other eight affidavits filed and served in the proceeding; in each case, to be assessed if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT STEWARD J: 1 On 24 August 2018, I delivered reasons for judgment and made the following orders: 1. The parties file within seven days: (a) the orders that they agree ought to be made to reflect the reasons for decision published this day; or (b) if no agreement as to the proposed orders can be reached between the parties, written submissions, limited to four pages in length, concerning the form of orders for final disposition of this appeal. 2 Written submissions from the parties were then filed and served. The applicant submitted that the following final orders should be made by the Court: 1. The Application be allowed and the matter is remitted to the Respondent for reconsideration of the objection decision in accordance with the reasons of the Honourable Court. 2. In reconsideration of the objection decision, the Respondent in addition to any other material, be entitled and bound, and have leave of the Court, to take into account the contents of any affidavit both read and unread as filed by the Applicant. 3. The Respondent pay the Applicant's costs of and incidental to the proceedings on an ordinary basis, including costs thrown away by the Applicant preparing the case on a merits review basis, to be taxed if not agreed. 3 The respondent (the "Commissioner") submitted that the following final orders should be made: 1. The application be allowed and the matter is remitted to the respondent for reconsideration in accordance with the reasons of the Honourable Court. 2. The respondent pay the applicant's costs of the proceedings, to be taxed if not agreed. 4 Two remaining issues divide the parties: (1) What evidence should the applicant be entitled to submit to the Commissioner for his consideration on remittal; (2) What orders should be made to reflect the fact that the applicant filed and served 28 affidavits, none of which were read at trial (on 28 November 2017 the applicant informed the Court that eight of these would not be read in any event). 5 In relation to the first issue, I will make orders substantially in the terms formulated by the Commissioner. In my view, for the purposes of the remittal, the applicant does not need the leave of the Court to rely upon affidavits previously served upon the Commissioner. Reliance upon those affidavits for that purpose does not give rise to an application of the rule in Harman v Secretary of State for the Home Department [1983] 1 AC 280. I further note the Commissioner's submission to the Court as follows: …the applicant is entitled to provide to the Commissioner whatever evidence she regards as relevant and useful to the exercise of the discretion. This Court should not place any fetter on what that evidence is. No doubt this statement will inform the manner in which the Commissioner will exercise his power of re-assessment pursuant to item 6 of s 170(1) of the Income Tax Assessment Act 1936 (Cth). 6 The second issue is more complex. Until 2018, both parties had proceeded to prepare their respective cases on an assumption that it was open to this Court to consider whether, for the purposes of s 35-55 of the Income Tax Assessment Act 1997 (Cth), it was unreasonable to apply the rule in s 35-10(2) of that Act. Twenty-eight affidavits had been filed by the applicant. Shortly before trial, both parties realised that this assumption was mistaken; both parties thereafter agreed that the Court could not for itself consider the merits of an application of s 35-55, but was instead limited to deciding whether the Commissioner's consideration of that provision was vitiated by an error of law. The affidavits were not relevant to that issue so they were not read. 7 The applicant sought an order that the Commissioner pay the costs thrown away in relation to the preparation of the affidavits (and other related costs). The Commissioner disagreed and otherwise submitted that the quantification of the costs payable should be left to a taxing officer to determine. The applicant submitted that she had sought to raise, as a preliminary issue of law, the correctness of the test posed by the Commissioner in his notice of objection decision, and that this had been opposed at an early stage by the Commissioner. The applicant contended that she had, effectively, thereafter been forced to prepare the affidavit material which has now been found to have been unnecessary. 8 I reject the applicant's submission that the Commissioner should compensate her fully for the costs of preparing her case on the mistaken basis of merits review. A review of the applicant's appeal statement, and of the transcript provided to the Court, show that: (1) the applicant did not originally plead that her case was one of judicial review (although she did plead that the Commissioner had applied the wrong test); and (2) the applicant made a voluntary decision not to proceed with any application for the determination of a preliminary question of law. 9 However, I do think that the Commissioner should pay some of the applicant's costs of preparing 20 of the 28 affidavits which were not read (I would exclude the eight which the applicant informed the Court on 28 November 2017 would not be read in any event). In my view, both parties were labouring equally under the same misapprehension about what the role and function of this Court is for the purposes of s 35-55. That is not intended as a criticism. This is the first case to consider that role and function. In these circumstances, the Commissioner should be ordered to pay 50% of the applicant's costs thrown away in preparing the 20 affidavits I have identified. 10 The orders of the Court are as follows: (1) The application be allowed and the matter be remitted to the respondent for reconsideration in accordance with law. (2) The respondent pay the applicant's costs of and incidental to the proceedings save that: (a) the respondent shall pay only 50% of the costs thrown away by the applicant in preparing the 20 affidavits upon which she intended to rely as from 28 November 2017; (b) the respondent shall not pay the costs thrown away by the applicant in preparing the other eight affidavits filed and served in the proceeding; in each case, to be assessed if not agreed. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Steward. Associate: Dated: 9 October 2018