Supreme Court New South Wales Medium Neutral Citation: Elanor Operations Pty Ltd v Chief Commissioner of State Revenue (No 2) [2022] NSWSC 275 Hearing dates: On the papers Date of orders: 15 March 2022 Decision date: 15 March 2022 Jurisdiction: Equity Before: Ward CJ in Eq Decision: 1. Vacate order (3) in the orders made on 16 February 2022, and replace with the following: (3) Subject to order 4 below, the defendant to pay the plaintiffs' costs of the proceeding. (4) Order the plaintiffs to pay the defendant's costs on the ordinary basis of: (a) the plaintiffs' notice of motion dated 20 April 2020 to set aside the subpoenas filed on 11 March 2020; (b) the defendant's notice of motion dated 19 May 2020; and (c) the defendant's notice of motion dated 28 April 2021. (b) the defendant's notice of motion dated 19 May 2020; and (c) the defendant's notice of motion dated 28 April 2021. Catchwords: COSTS – interlocutory applications where costs reserved – model litigant principles Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Payroll Tax Act 2007 (NSW), s 79 Taxation Administration Act 1996 (NSW), s 97 Uniform Civil Procedure Rules 2005 (NSW), r 42.2 Practice Note SC Eq 11 Cases Cited: Collignon Developments Pty Ltd v Wurth (1975) 1 ALCR 314 Elanor Operations Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 104 Elanor Operations Pty Ltd v Chief Commissioner of State Revenue [2020] NSWSC 840 Khoury v Sidhu [2011] FCA 857 Mahenthirarasa v State Rail Authority of New South Wales (No. 2) [2008] NSWCA 201 Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 O'Keefe Nominees v BP Australia (1995) 55 FCR 591 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 P&C Cantarella Pty Ltd v Egg Marketing Board (NSW) [1973] 2 NSWLR 366 Petar v Macedonian Orthodox Community Church St Pekta Inc (No 2) [2007] NSWCA 142 Scott v Handley (1999) 58 ALD 373 Yong v Minister for Immigration and Multicultural Affairs (1997) 75 FCR 155 Category: Costs Parties: Elanor Operations Pty Ltd (First Plaintiff) 193 Clarence Hotel Management Pty Ltd (Second Plaintiff) Albany Hotel Management Pty Ltd (Third Plaintiff) Bell City Accommodation Management Pty Ltd (Fourth Plaintiff) Bell City Hotel Management Pty Ltd (Fifth Plaintiff) Byron Bay Hotel Management Pty Ltd (Sixth Plaintiff) Cradle Mountain Lodge Management Pty Ltd (Seventh Plaintiff) Eaglehawk Hotel Management Pty Ltd (Eighth Plaintiff) Featherdale Management Pty Ltd (Ninth Plaintiff) JCF Management Pty Ltd (Tenth Plaintiff) Narrabundah Hotel Management Pty Ltd (Eleventh Plaintiff) Parklands Resort Hotel Management Pty Ltd (Twelfth Plaintiff) Pavilion Wagga Wagga Hotel Management Pty Ltd (Thirteenth Plaintiff) Port Macquarie Hotel Management Pty Ltd (Fourteenth Plaintiff) Tall Trees Hotel Management Pty Ltd (Fifteenth Plaintiff) Wollongong Hotel Management Pty Ltd (Sixteenth Plaintiff) Chief Commissioner of State Revenue (Defendant) Representation: Counsel: C Harris SC with J Stuckey-Clarke (Plaintiffs) S Balafoutis SC with A Byrne and R McMahon (Defendant) Solicitors: Kennedys (Australia) (Plaintiffs) Crown Solicitor's Office (Defendant) File Number(s): 2018/00332881 Publication restriction: Nil Judgment 1. HER HONOUR: On 16 February 2022, I published my reasons for decision on an application by the plaintiffs for review under s 97 of the Taxation Administration Act 1996 (NSW) (Taxation Administration Act) of a decision by the defendant (the Chief Commissioner) not to exercise the discretion under s 79 of the Payroll Tax Act 2007 (NSW) (Payroll Tax Act) to exclude the plaintiff companies from a single payroll tax group for the purposes of assessment of payroll tax under Part 5 of the Payroll Tax Act (Elanor Operations Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 104). 2. I concluded that the businesses of the plaintiff companies (within each of four sub-groups of companies – referred to as sub-groups 2-5 respectively) were relevantly carried on independently of, and not connected sufficiently in a material sense with the businesses carried on by any other sub-group or by the companies in the main sub-group (referred to as sub-group 1); and that the discretion to "de-group" should be exercised, as had been submitted by the plaintiffs. I revoked the decision not to exercise the discretion to exclude the plaintiff companies from the relevant Payroll Tax Group and remitted the matter to the defendant for determination. As to costs, I indicated that they should follow the event and ordered that the defendant pay the costs of the plaintiffs. 3. Senior Counsel for the defendant sought leave to apply for the costs order to be varied and I made directions to permit such an application and for brief written submissions to be filed with a view to determining the matter on the papers. Defendant's costs submissions 1. In essence, the defendant accepts that costs should follow the event but submits that that order should be qualified to reflect the outcome of two failed interlocutory applications which were brought by the plaintiffs in 2020 and in respect of which the question of costs was reserved or not addressed. 2020 interlocutory applications 1. First, by notices of motion filed on 20 April 2020, the plaintiffs sought to set aside notices to produce (issued by the defendant on 11 March 2020) served on each of the 14 plaintiffs, and subpoenas served on eight other entities in the Elanor Group (represented by the same lawyers as the plaintiffs), those compulsory processes seeking production of documents in substantially similar categories. The bases on which the plaintiffs sought to set aside in full the notices to produce and subpoenas was that they amounted to an abuse of process (being what is known as a "fishing expedition") and that they were in breach of Practice Note SC Eq 11. 2. Following the filing by the defendant on 19 May 2020 of a notice of motion for discovery by the plaintiffs of documents falling within the same categories (effectively superseding the plaintiffs' notice of motion to set aside the notices to produce) the plaintiffs' notice of motion to set aside the notices to produce was dismissed with no order as to costs. The defendant does not challenge that costs order. 3. The plaintiffs' motion to set aside the subpoenas and the defendant's subsequent motion for discovery were heard by me on 26 June 2020. I handed down judgment on 2 July 2020 (Elanor Operations Pty Ltd v Chief Commissioner of State Revenue [2020] NSWSC 840), dismissing the plaintiffs' motion to set aside the subpoenas and requiring discovery by the plaintiffs in accordance with categories set out in the schedule to the judgment (see the reasons at [97]-[103]). I reserved the question of costs of those applications. 4. The defendant says that, having substantially succeeded on both motions, an order now be made that the plaintiffs pay the defendant's costs of the subpoena motion and discovery motion or, alternatively, that the final costs order in the proceeding be qualified such that the defendant is not required to pay the plaintiffs' costs of the subpoena motion or discovery motion. 2021 interlocutory application 1. The second of the interlocutory applications in respect of which different costs orders are sought arose out of the issue by the plaintiffs on 15 April 2021 (which it is noted was around six weeks prior to trial), of a notice to produce requiring production by the defendant of documents within a number of categories, namely: (1) all guidelines, protocols, standards, policy documents or departmental memoranda issued by Revenue New South Wales concerning the exercise of the relevant de-grouping discretion, including but not limited to franchise business arrangements, applicable within part or all of the Relevant Period (as defined); (2) notices of determination made by the defendant or Revenue New South Wales responding to any application for the exercise of the said discretion in respect of payroll taxation assessments pertaining to part or all of the Relevant Period; (3) documents official or unofficial identifying examples of circumstances in which the said discretion would be exercised in either the affirmative or the negative relating to payroll taxation assessments pertaining to part or all of the Relevant Period; and (4) all correspondence giving effect to decisions made that are informed by the documents referred to in category (3). 2. The defendant, by letter dated 19 April 2021, advised the plaintiffs that (given the task on a review of a decision of the Chief Commissioner) none of the documents sought could be relevant; and complained that production of them would be oppressive. By letter dated 27 April 2021 in response, the plaintiffs pressed for production under the notice to produce. 3. The defendant then filed on 28 April 2021 a notice of motion to set aside the plaintiffs' notice to produce (with supporting affidavits filed on 28 April 2021 and 24 May 2021). The defendant, by letter dated 21 May 2021, communicated to the plaintiffs his reasons as to why their notice to produce should be withdrawn, in response to which, by letter dated 26 May 2021, the plaintiffs withdrew the last two of the categories of documents referred to above (categories (iii) and (iv)) but pressed the first of the categories and for an amended (more confined) second category. 4. I heard that motion in relation to the categories still in dispute on the first day of the hearing. I set aside the notice to produce and reserved the question of costs. The defendant submits that an order ought now be made that the plaintiffs pay the Chief Commissioner's costs of that motion (or, again in the alternative, that the final costs order in the proceedings be qualified so that the Chief Commissioner is not required to pay the plaintiffs' costs of the notice to produce or motion). Plaintiffs' submissions 1. The plaintiffs submit that the costs of the interlocutory applications in question should follow the event as costs in the cause and that the order made on 16 February 2022 (that the defendant pay the plaintiffs' costs) reflects the proper order as to the costs of those applications. 2. Further, the plaintiffs contend that the defendant failed to act as a model litigant in relation to the settlement and preparation of the Court Book, by reason of which the plaintiffs ought to receive an order for indemnity costs of the proceedings, or alternatively an order for indemnity costs with respect to the costs of disclosure and/or preparation of the Court Book. 2020 interlocutory applications 1. As to the interlocutory applications in 2020, no issue as to the costs of the plaintiffs' motion to set aside the notices to produce (ultimately dealt with by the defendant's motion for discovery) arises as the defendant does not challenge the costs order that was made in relation to that motion. As to the costs of the plaintiffs' motion to set aside the subpoenas and the defendant's motion, the plaintiffs say that there was not such a degree of failure on their part to warrant an order that the plaintiffs (who were successful in contesting the ambit of the disclosure sought and ultimately successful in the proceeding) should bear the defendant's costs. 2. It is noted that the outcome of the interlocutory hearing on 26 June 2020 was that disclosure was ordered only of those documents "as confined in the schedule and as further confined in the course of oral argument" and that I considered that there was a legitimate forensic purpose to the subpoenas and that it was not oppressive for them to be complied with, to the extent narrowed by reference to the schedule and in oral submissions. The plaintiffs point to the fact that all but two of the eight categories of documents sought were confined in some way and it is said that the most significant categories of documents (categories 3 and 4) were significantly narrowed and only to be disclosed by the first plaintiff. 3. The plaintiffs maintain that there was a legitimate contest as to disclosure which was resolved by the Court in the ordinary course and that it cannot be said that the plaintiffs wholly or substantially failed in the applications. The plaintiffs contend that the costs of the resolution of the disclosure dispute should be paid by the defendant (being the party who was ultimately unsuccessful at final hearing). 2021 interlocutory application 1. The plaintiffs submit that this application was also legitimately made and point to my comment when the motion was determined (that I was not making any costs orders "at this stage") as indicating an intention that the costs of this application follow the event. It is noted that there was no separate hearing of the application. Issue raised by plaintiffs as to conduct of defendant in relation to court book 1. The plaintiffs refer to the model litigant obligations of parties in the position of the defendant (referring to P&C Cantarella Pty Ltd v Egg Marketing Board (NSW) [1973] 2 NSWLR 366 at 383E; Yong v Minister for Immigration and Multicultural Affairs (1997) 75 FCR 155 at 166E). Reference is made to the statement of the Full Court of the Federal Court in Scott v Handley (1999) 58 ALD 373 at [43] to the effect that the expectation of such a party is that it "adhere to those standards of fair dealing in the conduct of litigation that courts in this country have come to expect". In this regard, the plaintiffs complain in two respects. 2. First, complaint is made that, although the defendant acknowledged in his determination of 31 August 2018 that the plaintiffs' managed investment scheme structure represented a "unique set of facts and circumstances", his delegates made no serious attempt to understand that structure beyond looking at the plaintiffs' website and it is said that the defendant rejected out of hand the plaintiffs' approaches in relation to settlement, as set out in the affidavit of the plaintiffs' solicitor Ms Persephone Forster (see affidavit sworn 2 March 2022 at [5]-[11]). 3. Second, complaint is made that the conduct of the defendant in relation to the preparation of the Court Book generated unnecessary expense and delay. In this regard, the plaintiffs say that they had proposed that, given the volume of documents produced by the plaintiffs upon which the plaintiffs would not be relying at final hearing, the defendant prepare a draft Court Book index of the produced documents or categories of produced documents upon which he would be relying at final hearing; which was rejected by the defendant. The plaintiffs complain that they were therefore put to the cost and expense of preparing 10 volumes containing the entirety of the produced documents as part of the Court Book (referring to [12]-[29] of Ms Forster's affidavit). 4. The plaintiffs say that at the final hearing, four of the ten volumes of the Court Book containing the produced documents were not referred to at all by the defendant and others only sparingly. The plaintiffs have prepared a schedule (see pp 86-88 of the exhibit marked "PF-1" to Ms Forster's affidavit) of those documents referred to at the hearing by the defendant. The plaintiffs say that the defendant had ample time to specify a reduced scope of produced documents upon which the defendant proposed to rely which it is said would have avoided the costs and delay occasioned by the production of all of volumes 10-17 of the Court Book. The plaintiffs complain that the defendant did not intend to turn his mind to its use of the produced documents until after the Court Book had been prepared by the plaintiffs, and had no concern for or regard to the excessive and unnecessary costs incurred thereby. 5. Thus the plaintiffs contend that the conduct of the defendant "amounted to intentionally shifting the substantial burden of the costs and running of the litigation" which the defendant had acknowledged was in respect of a "unique set of facts and circumstances". It is said that this justifies an order for indemnity costs of the proceeding, or alternatively an order for indemnity costs with respect to the costs of disclosure and/or preparation of the Court Book. Determination 1. There is a broad discretion in relation to costs orders (s 98 of the Civil Procedure Act 2005 (NSW)), that discretion to be exercised judicially (see Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [22] per Gaudron and Gummow JJ). The general rule is that costs follow the event (see r 42.2 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR); see also the observations of Spender J in O'Keefe Nominees v BP Australia (1995) 55 FCR 591 at 598B). Hence my initial determination (see at [161] of the principal reasons) that costs should follow the event (i.e., that the defendant would be ordered to pay the plaintiff's costs, which would be assessed on the ordinary basis). Notwithstanding this, each case must depend upon its own facts and in some circumstances on an interlocutory appeal orders other than costs in the cause may be appropriate (see Petar v Macedonian Orthodox Community Church St Pekta Inc (No 2) [2007] NSWCA 142 [21] (Beazley, Giles Hodgson JJA); Khoury v Sidhu [2011] FCA 857 [31]-[32] (Greenwood J); see also, for example Collignon Developments Pty Ltd v Wurth (1975) 1 ALCR 314). 2. Turning first to the costs of the 2020 interlocutory applications (to set aside the subpoenas and for discovery), on which I reserved the question of costs, the ultimate outcome was that I was satisfied that there was a legitimate forensic purpose to the subpoenas and that it is not oppressive for them to be complied with (to the extent narrowed by reference to the schedule that had been prepared by the defendant and in oral submissions) and the defendant obtained orders for the production of documents by way of discovery (albeit as confined in the schedule prepared by the defendant – see [102] of the reasons concerning the subpoena – and as further confined in the course of oral argument). I considered that it was not oppressive to require that to be done provided sufficient time was allowed for that purpose. 3. It will be recalled that the particular categories of documents that remained in dispute by the time of the hearing of the 2020 interlocutory applications were as follows (see from [46]): category 1, constituent documents (including the constitutions, trust deeds, fund deeds, stapling deeds, and any shareholders agreements) for any of the Relevant Trusts (as there defined) on the basis that it was necessary to understand the connection between the relevant companies and how the trusts fitted within the group of companies (the objection to the production of such documents for the Relevant Companies no longer having been pressed); category 3, correspondence between employees of Elanor Operations Pty Ltd and certain companies (amended to confine the time period in respect of which correspondence was sought and only to be discovered by Elanor Operations; and not including documents held or retained by former employees or on devices used by former employees and not backed up to a central server), the relevance of which was to test the connection between the companies and degree to which Elanor Operations employees supervised those companies and to test the plaintiffs' evidence that such oversight as there was did not extend to operational matters; category 4, confined to contracts of employment and job descriptions for employees of Elanor Operations (and as had been narrowed in correspondence), relevant to testing the degree of management and supervision of companies in the group; category 5, financial statements of the Relevant Trusts (the issue not being disputed in relation to Relevant Companies) for specified years; category 6, documents identifying the services provided to any of the Relevant Trusts in exchange for management fees (limited to information memoranda, marketing material and constitutions) (the objection in relation to Relevant Companies not being pressed); category 7, engagement letters for accountants or lawyers who provided services for Relevant Trusts during the Relevant Period (again, the objection to Relevant Companies not being pressed), the relevance being to show the extent of shared services or connection between the group (and in argument being limited even further). 4. For completeness, I note that the remaining categories which were not disputed by the time of the hearing of the applications: were category 2 (notices of meeting and minutes of meeting for directors meetings and general meetings for any of the Relevant Companies (as defined) in the period from 1 July 2014 to 30 June 2016, and board reports provided to directors for those directors meetings; and category 8, leases for arrangements referred to in the affidavit of the plaintiffs' managing director. 5. The defendant obtained, in substance, what had been sought (and which had been resisted by the plaintiffs) albeit not wholly what had been sought (and would not have obtained those documents but for the stance it took on the applications. This was a separate application (for which discrete costs would no doubt have been incurred). I consider that it is not appropriate that the defendant be required to pay the plaintiffs' costs of this separate application. Even though I accept that there was co-operation between the parties which had the result of narrowing the categories, the fact remains that it was necessary for the defendant to defend the application to set aside the subpoenas and to bring the (contested) application for discovery in order to obtain the documents ultimately ordered to be produced. I consider it appropriate that costs follow the event on this issue. Therefore, I will amend the order as to costs such that the plaintiffs are to pay the defendant's costs of these interlocutory applications. 6. As to the 2021 interlocutory application, that is in some sense in a different category in that it was an application that occurred in the course of the hearing itself; such that it might well be said that it formed part of the cost of the hearing itself. Nevertheless, it is apparent from the way in which I dealt with the application at the time that I was deferring ruling on the question of costs in order not to waste valuable hearing time – and that I was in effect treating the issue as reserved. It is therefore appropriate to deal separately with those costs at the conclusion of the hearing. To the extent that costs were incurred in responding to the notice to produce and preparing for the defence of the plaintiffs' application for production of the documents the subject of the 2021 notice to produce, for similar reasons to the above I consider that the same result should follow. 7. Finally, as to the complaint in relation to the conduct of the defendant in the litigation, I note that the principles that govern the way in which the State and its agencies ought to behave in litigation are set out in the Model Litigant Policy for Civil Litigation (adopted on 8 July 2008 by all state government agencies and revised on 1 July 2016). The policy gives expression to the responsibility of the State as a model litigant, long enshrined in the common law as an "old-fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with subjects" (Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333, 342 (Griffith CJ)). In particular, those obligations require model litigants to deal with claims promptly, not to cause unnecessary delay in the handling of claims and litigation, and to keep the costs of litigation at a minimum (see also the statement of principle by Basten JA at [22] in Mahenthirarasa v State Rail Authority of New South Wales (No. 2) [2008] NSWCA 201). 8. I do not consider that the conduct of the defendant in the present case was in breach of those obligations such as to warrant an indemnity costs order. First, on the material to which I was privy, I do not accept that the defendant made no serious attempt to understand the structure of the plaintiff companies. Rather, it seems to me that the defendant did address matters relevant to the structure and operation of the companies, not least in seeking the documents it did in relation thereto. Second, as to the preparation of the Court Books, again I do not accept that there was a breach of the model litigant obligations. True it is, there was sparing reference to some of the volumes of documents. However, I consider that it is understandable that, faced with what were acknowledged to be unique circumstances, it may not have been clear at the outset precisely what material would be necessary to explore in the course of the hearing (or what might be necessary to address queries that I may have had). I suspect that the defendant (not improperly) was erring on the side of caution, rather than taking any sort of obstructive position; and I do not accept that a finding could comfortably be made to the effect that there had been some sort of intentional placement of an unnecessary burden on the plaintiffs in this regard (as the plaintiffs here contend). 9. I further note that the cases cited by the plaintiffs concern the duties of model litigants not to take advantage of claimants who lack resources or legal representation, not to rely on technical defences, and to assist the Court to arrive at the proper and just result. None of those cases supports the proposition that a model litigant ought to reduce the cost and expense incurred by a claimant in preparing the Court Book, in particular where the model litigant is taking a legitimate step to protect its interests. Orders 1. Accordingly, I make the following orders: 1. Vacate order (3) in the orders made on 16 February 2022, and replace with the following: (3) Subject to order 4 below, the defendant to pay the plaintiffs' costs of the proceeding. (4) Order the plaintiffs to pay the defendant's costs on the ordinary basis of: (a) the plaintiffs' notice of motion dated 20 April 2020 to set aside the subpoenas filed on 11 March 2020; (b) the defendant's notice of motion dated 19 May 2020; and (c) the defendant's notice of motion dated 28 April 2021. (b) the defendant's notice of motion dated 19 May 2020; and (c) the defendant's notice of motion dated 28 April 2021. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 March 2022