FEDERAL COURT OF AUSTRALIA Lloyd v Belconnen Lakeview Pty Ltd (No 2) [2020] FCA 698 File number: NSD 1417 of 2017 Judge: LEE J Date of judgment: 14 May 2020 Catchwords: REPRESENTATIVE PROCEEDINGS – orders under 33ZB of the Federal Court of Australia Act 1976 (Cth) – whether there is a continuing "jurisdiction" requirement in s 33C – notion of s 33C as a "gateway" provision – application dismissed REPRESENTATIVE PROCEEDINGS – Simultaneous ss 33C and 33N applications as logically inconsistent – deferring consideration of a s 33N application where there is the likelihood of an appeal against s 33ZB orders COSTS – discretionary power to award costs – power qualified by ss 37M and 37N – adopting a broad-brush approach – discretion not to be exercised "whimsically" or "idiosyncratically" Legislation: Competition and Consumer Act 2010 (Cth) Pt XI Constitution s 76(ii) Federal Court of Australia Act 1976 (Cth) ss 33C, 33H, 33L, 33M, 33N, 33ZB, 37M, 37N, 43 Judiciary Act 1903 (Cth) s 39B(1A)(c) Trade Practices Act 1974 (Cth) Cases cited: Dovuro Pty Limited v Wilkins [2003] HCA 51; (2003) 215 CLR 317 Ethicon Sarl v Gill [2018] FCAFC 137; (2018) 264 FCR 394 Graham Barclay Oysters Pty Limited v Ryan [2002] HCA 54; (2002) 211 CLR 540 Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177 Date of hearing: 14 May 2020 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 20 Counsel for the Applicant: Mr A J L Bannon SC with Mr C Colquhoun Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the Respondents: Mr A J McInerney SC Solicitor for the Respondents: HWL Ebsworth Lawyers ORDERS NSD 1417 of 2017 BETWEEN: SUSAN MARGARET LLOYD Applicant AND: BELCONNEN LAKEVIEW PTY LTD ACN 127 550 029 First Respondent JOHN KINLOCH HINDMARSH Second Respondent GERALD JOHN RYAN Third Respondent JUDGE: LEE J DATE OF ORDER: 19 MAY 2020 THE COURT ORDERS THAT: 1. Judgment be entered for the applicant in the amount of $29,914.50 (comprising $23,379.50 plus interest up to the date of judgment in the amount of $6535). 2. Pursuant to s 33ZB of the Federal Court of Australia Act 1976 (Cth) (Act), the Court makes the findings and determines the questions identified in the Schedule to this order, and those findings and the answers to those questions bind the parties and all group members who have not opted out of the proceeding. 3. The representative proceeding against the second and third respondent be dismissed. 4. The first respondent pay one half of Mrs Lloyd's costs of the proceeding (other than the costs payable pursuant to order 5). 5. The interlocutory application of the first respondent filed on 6 April 2020 be dismissed with costs. 6. The costs payable pursuant to orders 4 and 5 be the subject of a lump-sum cost assessment to be conducted by a Registrar with such an assessment to be conducted in a manner which best facilitates the overarching purpose (see s 37M of the Act). 7. In the event that an appeal is not lodged, the parties have liberty to relist the proceeding by approaching the Associate to Justice Lee. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised from Transcript) LEE J: 1 On 20 December 2019, reasons for judgment were delivered in Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177 (Principal Judgment). There is now the requirement, pursuant to s 33ZB of the Federal Court of Australia Act 1976 (Cth) (Act), for the Court to make orders as to questions of fact and law that reflect those reasons and which will bind the parties and group members who have not opted out of the proceeding. The relevant findings and answers to those identified questions are contained in the Schedule to this judgment. The reasons that follow are not directed to the particular form of those orders, but concern a number of other issues that have arisen at the hearing. My reasons for making the s 33ZB orders in the form in which they have been made are evident from the transcript. In short, the terms of the orders made have been informed by a desire to maximise the utility of the s 33ZB procedure, while being conscious of: (a) the impossibility of determining individual group member cases which involve consideration of all the circumstances of the case; and (b) the limits in making orders of this type which have the effect of declarations: see Graham Barclay Oysters Pty Limited v Ryan [2002] HCA 54; (2002) 211 CLR 540 (Gummow and Hayne JJ at 590–1 [128]) and Dovuro Pty Limited v Wilkins [2003] HCA 51; (2003) 215 CLR 317 (Hayne and Callinan JJ at 363 [143]). 2 It is helpful to outline briefly the relevant procedural developments following the delivery of the Principal Judgment. In the ordinary way, the applicant (Mrs Lloyd) and respondents filed submissions concerning the proper form of the s 33ZB orders on 16 March 2020 and 6 April 2020, respectively. The first respondent (Belconnen) also filed an interlocutory application on 6 April 2020 seeking leave to, inter alia, "re-open" the proceeding in respect of Mrs Lloyd's claim for damages for loss of a commercial opportunity and an order declassing the proceeding pursuant to s 33N of the Act (notwithstanding that there had been no final orders made). 3 Further submissions were then advanced on either side in reply to the proposed s 33ZB orders, as well as on the merits of the application to "re-open", as to further common issues and the declassing of the proceeding. Belconnen then issued a Notice to Produce on 11 May 2020, to which Mrs Lloyd objected. In its outline of submissions in reply filed on 13 May 2020, Belconnen indicated that it did not press its application to "re-open". Belconnen did, however, maintain the application to declass the proceeding pursuant to s 33N of the Act, and, by way of a supplementary note filed on 14 May 2020, sought leave to amend its interlocutory application to seek an order dismissing the proceeding on the basis that the "jurisdictional requirement in s 33C(1)(c)" of the Act is no longer satisfied. 4 It is necessary to first comment on Belconnen's application to "re-open", which, as noted above, was ultimately not pressed. Supported by an affidavit of Mr McGregor filed on 6 April 2020, the interlocutory application set out in some detail a range of matters, including the fact that there had been a failure to address certain submissions advanced at the initial trial, thus occasioning a denial of procedural fairness. I noted to senior counsel for Belconnen at the commencement of the hearing, that in the present case, no orders had been made in relation to the proceeding. My reasons were only reasons and had not been the subject of the entry of any judgment or the making of any orders. Therefore, if Belconnen wished to put submissions or advance any argument as to matters that it contended had not been addressed in the reasons, it was free to do so and I had no difficulty with that opportunity being afforded and those issues being considered prior to the making of any orders. On one view, given the issue had been raised by Belconnen, it was not now just a matter for Belconnen, as I wished to ensure procedural fairness was afforded and that no argument had been left unaddressed before making a final determination and corresponding orders. However, the course adopted by Belconnen was to decline to advance any submissions as to the matters in respect of which it had made complaint. 5 Following this procedural rigmarole, the remaining issues for which reasons are to be provided can be categorised as follows: A the "section 33C application"; B the section 33N application; and C orders as to costs. 6 For simplicity and clarity, I adopt the terms defined in the reasons of the Principal Judgment. A THE "Section 33C Application" 7 Upon the making of s 33ZB orders, Belconnen seeks an order dismissing the proceeding on the basis that the "jurisdictional requirement in s 33C(1)(c)" of the Act is no longer satisfied. This contention was explained as going to the "jurisdiction" of the Court, not in the sense of whether there was a "matter" pursuant to s 76(ii) of the Constitution or s 39B(1A)(c) of the Judiciary Act 1903 (Cth), but in the sense as to whether the Court has authority for the proceeding to remain a representative proceeding. 8 As the Full Court explained in Ethicon Sarl v Gill [2018] FCAFC 137; (2018) 264 FCR 394 (Allsop CJ, Murphy and Lee JJ at 397 [7]): Two "gateway" provisions contained in Part IVA of the Act were relevant to the commencement of this proceeding. The first was s 33C, which only allowed the applicants to commence if: (a) seven or more persons had claims against the respondents; (b) the claims of all of those persons were in respect of, or arose out of, the same, similar or related circumstances; and (c) the claims of all of those persons gave rise to a substantial common issue of law or fact. The second "gateway" provision, s 33H, required the applicants to specify common issues and identify or describe the group members in either "the application commencing the proceeding or in a document filed in support of such an application". Section 33H operates to ensure that the Court can assess, at the outset, whether the specified pre-conditions for the commencement of a class action (contained in s 33C) were present. 9 A gateway provision is just that: a gateway. Once a representative proceeding passes through the s 33C gateway (as assessed by reference to the requirements specified in s 33H), s 33C has no further work to do. A common mistake is that parties seek an application pursuant to s 33N to declass the proceeding based on a failure to comply with the requirements in s 33C. However, ss 33C and 33N are directed to entirely different matters. Section 33C concerns the factors that must exist separately from, and prior to, the commencement of a representative proceeding. If those matters do not exist, a representative proceeding cannot be brought and if a class action is purported to be commenced, it should be struck out as not being a valid Pt IVA proceeding. Section 33N, on the other hand, has as its point of departure the fact that a valid representative proceeding has already been commenced. Together with the other declassing provisions in Part IVA, s 33N provides a discretion to bring a valid representative proceeding to an end in identifiable circumstances: see also ss 33L and 33M. The notion that there is some continuing "jurisdictional" requirement in s 33C(1)(c) which, if no longer satisfied, means that the Part IVA proceeding must be dismissed, is therefore contrary to the very structure of Part IVA and the role of s 33C as a gateway provision. Accordingly, the s 33C application is misconceived, and must be dismissed. B The Section 33N Application 10 Belconnen also seeks and order declassing the proceeding pursuant to s 33N of the Act. As explained in the preceding paragraph, it is worth noting that there is an illogicality in making simultaneous ss 33C and 33N applications (except if advanced as true alternatives). 11 In any event, it is open to Belconnen to bring a s 33N application. This reflects the not uncommon practice of declassing a class action after the determination of common issues and making orders for the individual cases of group members to be determined in the context of subsequent inter partes litigation. While it may be the case that a s 33N order is appropriate in this class action, it is premature to deal with such an application at the moment. This is because in Belconnen's reply submissions filed on 13 May 2020 (at [3]), there is a reference to a possible appeal. 12 While senior counsel for Belconnen has not indicated that an appeal is inevitable, it remains a not insignificant prospect. There is also a prospect that if any such appeal is successful, relief would be granted by ordering a new initial trial dealing with common issues of law or fact. In these circumstances, I will adopt what has become the usual course of deferring any consideration of declassing the proceeding where there is an appeal (or the likelihood of an appeal) against s 33ZB orders. C ORDERS AS TO COSTS 13 It is often said that the discretionary power to award costs under s 43 of the Act is largely an unfettered one. However, the exercise of discretion is qualified in two ways. First, pursuant to s 37M(3) of the Act, any power (including the power to award costs under s 43) must be exercised in a way that best promotes the overarching purpose. Secondly, s 37N(4) expressly provides that in exercising the discretion to award costs, the Court must take into account any failure to comply with the overarching purpose obligations. 14 Although there is no finding that there had been a failure by either party to comply with the overarching purpose obligations in the present case, this does not mean that the case management imperatives in Part VB are irrelevant to the discretionary exercise of awarding costs. Indeed, s 37M(3) makes clear the contrary. 15 This was a long and complex class action which was case managed and heard together with another class action, the Governor Place proceeding. Significant time was spent by both the parties and the Court in an attempt to refine the issues to be determined at the initial trial. Mrs Lloyd brought the Altitude proceeding to recover the component of the purchase price payable pursuant to the Altitude Contract said to be referrable to Goods and Services Tax. As is noted in [18] of the Principal Judgment, Mrs Lloyd pleaded an array of causes of action, including for money had and received, breach of contract, misleading and deceptive conduct, and unconscionable conduct (contrary to the provisions of the Australian Consumer Law, as applied by Pt XI of the Competition and Consumer Act 2010 (Cth) and the Trade Practices Act 1974 (Cth)). By reason of the way in which the unconscionable conduct case was pleaded, this also involved potential consideration of the equitable doctrine of unconscionability. 16 As is evident from the Principal Judgment, there were aspects of the pleading which, with respect, tended to elide the difference between the individual case being advanced by Mrs Lloyd and the case of group members. By way of example, both the unconscionability and misleading and deceptive conduct cases were pleaded in such a way as to mix together the applicant's claim and that of the group members. This caused some degree of confusion. 17 The principal claim advanced by Mrs Lloyd was the action for money had and received based on the application of restitutionary principles. This was also the principal case advanced in the Governor Place proceeding. Consistent with this being the primary case, a close construction of the relevant terms of the contract entered into by Mrs Lloyd (as well as the two contracts entered into by the applicants in the Governor Place proceeding) and the application of restitutionary principles in relation to those claims occupied the vast bulk of the hearing. Additionally, the claims for accessorial liability made against Mr Ryan and Mr Hindmarsh failed completely. 18 I raised with the parties my view that the most appropriate course would be to fix an appropriate percentage of the costs to be recovered by Mrs Lloyd, notwithstanding that her claim against two of the three respondents failed and her primary claim against the other respondent also failed. I was originally attracted to the proposition that Mrs Lloyd should recover 25 per cent of her costs, as this seemed to reflect the mixed success of Mrs Lloyd. However, on closer reflection, this result does not sufficiently reflect the fact that, although the claim in restitution failed, it was ultimately necessary for the Court to grapple with the terms of the contract in order to deal with the misleading and deceptive conduct case. It was also necessary for the Court to be assisted in relation to the authorities informing the determination of the restitutionary claim because of the cognate claim made in the Governor Place proceeding. 19 Furthermore, it is worth noting that the claim for restitution in the Governor Place proceeding was partially successful and so the amount of incremental time that might be regarded as being wasted in relation to that aspect of the case is far less than might appear at first glance. Senior counsel for Mrs Lloyd also drew attention to the fact that, when one considers the evidence that was adduced at the hearing, it is difficult to see why any significant part of the evidence was unnecessary to be adduced in order to deal with the misleading and deceptive conduct case. Accordingly, although Mrs Lloyd was only partially successful in her claims, when one has regard to the amount of time lost on those aspects of the case that were ultimately unsuccessful, the wasted costs are less than might appear at first sight. Therefore, given the requirement under Part VB to have regard to the overarching purpose in exercising discretion as to costs, it seems that justice would best be served by Mrs Lloyd recovering 50 per cent of her costs of the proceeding. While this is necessarily a broad-brush assessment, this percentage reflects the unusual circumstances of this case and is a fairer outcome than the one I initially found attractive. 20 Lastly, I have been cautioned in written submissions that the discretion to award costs must not be exercised "whimsically" or "idiosyncratically". I trust a broad-brush approach would not be regarded as an exercise in whimsy. There are no bright lines when it comes to discretionary assessments such as this. Indeed, it would be entirely artificial for the Court to devote time to trawling through individual affidavits and each aspect of the proceeding in order to determine, on a more granular level, the time spent and costs incurred that may have been unnecessary as matters turned out. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. Associate: Dated: 21 May 2020 Schedule 1. The first respondent (Belconnen) is and was at all material times from 21 May 2010 to 14 August 2015 the trustee of the Belconnen Lakeview Unit Trust, which was registered for GST (as defined in A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act)) under Part 2-5 of the GST Act with ABN 82 498 655 812. [AF2] 2. From 21 May 2010 to 14 August 2015, Belconnen offered to enter into, and entered into, contracts (together the Altitude Contracts, each a Contract) with the group members to sell the unexpired term of a lease subject to those provisions granted to Belconnen under s 238 of the Planning and Development Act 2007 (ACT) (Unit Lease) for a unit (Unit) in the development located at Belconnen Section 55, Block 52, on Deposited Plan 10109 (Property) for a price (Price). [AF15] [AS2] 3. When did the Altitude Contracts entered into between Belconnen and group members settle? From 8 February 2013 to 3 September 2015. [AS3] 4. The Altitude Contracts contained the following terms: (a) The Price was described as "GST inclusive unless otherwise specified" (page 1 of the schedule), and the Contract did not otherwise specify; (b) The sale of the unexpired term of a Unit Lease for a Unit was a "Taxable supply (including new residential premises)" (page 2 of the schedule); and (c) The Price payable in accordance with the Contract was "inclusive of GST". [AF16] 5. The Altitude Contracts also contained the following terms: (a) The "Buyer and Seller agree to apply margin scheme" (page 2 of the schedule); (b) The group member agrees with Belconnen that any GST Belconnen was liable to pay on the sale of the unexpired term of a Unit Lease for a Unit under the Contract was to be calculated under Division 75 of the GST Act; and (c) Belconnen warranted that it could use the margin scheme and promised that it would (cl 24.5). [AF17] 6. Were the Altitude Contracts prepared by Belconnen on the basis that the sales of the Altitude Units would be taxable supplies, and the Price of the Altitude Units was inclusive of GST? Yes. [AS4] [J8] 7. On their proper construction, the fact that the Altitude Contracts were GST-inclusive meant that, irrespective of what happened between exchange and settlement or prior to GST becoming payable, the buyer will have no liability for payment of GST. 8. On or about 8 February 2013, Belconnen applied to the Commissioner of Taxation for a private ruling to the effect that the sale of the unexpired term of a Unit Lease for a Unit was input taxed and not a taxable supply under s 9-5 of the GST Act. [AF22] 9. On or about 12 March 2013, the Commissioner of Taxation issued a private ruling to Belconnen to the effect that the sale of the unexpired term of a Unit Lease for a Unit was input taxed and not a taxable supply under s 9-5 of the GST Act subject to Belconnen amending any GST returns that had been lodged in relation to the development to ensure that all acquisitions were treated as not being creditable acquisitions (Private Ruling). [AF23] 10. On or about 21 March 2013, Belconnen paid the amount of $2,086,245 to the Commissioner of Taxation. In or around mid-2013, Belconnen paid the amount of $5,979,640 to the Commissioner of Taxation. [AF24] 11. In or about March 2013, Belconnen filed amended GST returns pursuant to the Private Ruling. [AF25] 12. On 29 October 2013, 12 November 2013 and 7 January 2014, the Commissioner of Taxation issued revised private rulings to take effect from 20 February 2014, 31 May 2014 and 31 May 2015, respectively. Each revised private ruling had the effect of replacing the earlier private ruling. [AF26] 13. The revised private ruling issued on 7 January 2014 was withdrawn by the Commissioner of Taxation before it came into effect on 13 June 2014, when the Commissioner of Taxation issued a further private ruling which reinstated the Private Ruling. [AF26] 14. When did Belconnen engage Maxim to prepare a private ruling request? Maxim was engaged by Belconnen to prepare a private ruling request on 14 January 2013. [AS5] 15. Prior to the completion of the Altitude Contracts, Belconnen Lakeview did not disclose to the applicant or the group members that: (a) It intended to apply for, had applied for or had obtained the Private Ruling; and/or (b) GST was not payable in respect of the sale of the unexpired term of a Unit Lease for a Unit. [AF27] 16. Were the sales of the Units by Belconnen in fact input taxed and not taxable supplies? Yes. [AS6] 17. Were Altitude Contracts amended by Belconnen to reflect the change in the GST treatment of the sales of the Units from taxable supplies to input taxed? No. [AS7] 18. Is Belconnen liable to account to group members for amounts representing the GST paid to them pursuant to the Altitude contracts on the basis they were moneys had and received? No. [AS1]; 19. The terms of the Altitude contracts which Belconnen offered to enter into and did enter into with the group members (in the absence of further information that GST was not payable in respect of the sale of the unexpired term of the Unit Lease for a Unit (see 15(b) above)), conveyed the following representations that continued until the completion of each contract: (a) On the information available to Belconnen it was likely that GST was payable in respect of the supply of the Unit the subject of the Contract and it was likely that an amount representing GST on the supply would in due course be paid to the Commissioner of Taxation; and (b) Belconnen held the opinion to the effect of sub-paragraph (a) above and there was a reasonable basis for such opinion. (See Judgment [296], [316], [317]) [AS8] [AS9]) 20. Irrespective of the position at any earlier time, was there a reasonable basis for making the representations referred to in paragraph 19 above on and from the date of the Private Ruling, namely, 12 March 2013? No. [AS10] 21. Did Mr Ryan turn his mind to the GST treatment of the sales of the Units in the Contracts? No. [AS12] 22. Did Mr Hindmarsh have anything to do with the review and approval of the Contracts? No. [AS13] 23. Did the conduct of Belconnen engaging in the following system of conduct or pattern of behaviour: (a) as pleaded in paragraphs 16 to 22 of the Statement of Claim, offering to enter into, entering into and settling on Altitude Contracts containing terms to the effect that the sale of the unexpired term of a Unit Lease for a Unit was a taxable supply and the Price was inclusive of GST; (b) from at least November 2012, taking the position that the sale of the unexpired term of a Unit Lease for a Unit was (or was likely to be) input taxed and that GST was not (or was unlikely to be) payable; (c) at all material times prior to the settlement of the Altitude Contracts, failing to inform the applicants and the Altitude group members that GST was not (or was unlikely to be) payable in respect of the sale of the unexpired term of a Unit Lease for a Unit; and (d) retaining for its own benefit an amount equivalent to the component of the Price paid by the applicant and the Altitude group members referable to GST; offend notions of good conscience in such a way as to stigmatise that system of conduct or pattern of behaviour as unconscionable conduct? No.