Reported Decision : 119 LGERA 395 Land and Environment Court of New South Wales CITATION : Maurici v Chief Commissioner of State Revenue [No. 5] [2001] NSWLEC 287 APPLICANT: Anthony Phillip Maurici PARTIES : RESPONDENT: Chief Commissioner of State Revenue FILE NUMBER(S) : 30039 of 1999 CORAM: Lloyd J KEY ISSUES: Costs :- class 3 proceedings - appeal against tax assessment - principles in exercise of discretion as to costs Land and Environment Court Act 1979 s 69(2) LEGISLATION CITED: Land Tax Management Act 1956 s 38A Practice Direction 1996 cl 10A Bruce-Smith (Executors of Estate of) v Federal Commissioner of Taxation (1973) 130 CLR 340; Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547; McDonald v Mosman Municipal Council [No. 2] (2000) 107 LGERA 211; Maurici v Chief Commissioner of State Revenue, NSWLEC, Commissioner Nott, 6 October 1999, unreported; CASES CITED: Maurici v Chief Commissioner of State Revenue [No. 2] (1999) 105 LGERA 318; Maurici v Chief Commissioner of State Revenue [No. 3] 107 LGERA 222; Maurici v Chief Commissioner of State Revenue [No. 4] 114 LGERA 376; Murray (In re the Estate of) (1961) 62 SR (NSW) 485; Murray Publishers Pty Ltd v Valuer-General (1994) 84 LGERA 13; Oshlack v Richmond River Council (1998) 193 CLR 72 DATES OF HEARING: 18/10/2001 DATE OF JUDGMENT: 12/14/2001 APPLICANT: Mr C J Birch SC and Mr J Stoljar (Barrister) SOLICITORS: Speed & Stracey LEGAL REPRESENTATIVES: RESPONDENT: Mr B J Preston SC and Ms J H H Blackman (Barrister) SOLICITORS: I V Knight JUDGMENT: 8 IN THE LAND AND Matter No.: 30039 of 1999 ENVIRONMENT COURT Coram: Lloyd J OF NEW SOUTH WALES Decision date: 14 December 2001 Anthony Phillip Maurici Applicant v Chief Commissioner of State Revenue Respondent REASONS FOR JUDGMENT [No. 5] 1. This is the re-hearing of an application for costs brought by the applicant following the hearing and determination of an appeal under s 38A of the Land Tax Management Act 1956. That appeal was against the disallowance by the respondent of the applicant's objection to land tax based on the respondent's valuation of the applicant's land at No. 66 Point Road, Woolwich. 2. The facts which give rise to the present re-hearing may be briefly described. The appeal was brought in class 3 of the Court's jurisdiction and was assigned to Commissioner Nott, commencing on 9 September 1999. On 26 August 1999 the Valuer-General acting, it seems, with the authority of the respondent, wrote to the applicant informing him that he proposed to reduce the valuation which had been placed on the land from $2,440,000 to $2,000,000. A draft consent order was enclosed with the letter disposing of the applicant's appeal on this basis. The draft consent order also proposed that there be no order as to costs. 3. The applicant elected to proceed with his appeal. At the hearing before Commissioner Nott, the applicant contended for a land value of $1,125,000. Commissioner Nott allowed the appeal and determined a land value of $1,950,000. 4. The applicant appealed against Commissioner Nott's decision to a judge of the Court pursuant to s 56A of the Land and Environment Court Act 1979. That section allows appeals on questions of law. The appeal was heard by Cowdroy J, who allowed the appeal and remitted the proceedings to the Commissioner for re-hearing and further ordered the respondent to pay the applicant's costs of the appeal (Maurici v Chief Commissioner of State Revenue [No. 2] (1999) 105 LGERA 318). Cowdroy J held that the Commissioner had erred in law by making no deduction for an improvement, namely a retaining wall, which the Commissioner had decided was within the definition of "land improvement". Cowdroy J also held that the Commissioner erred in law in failing to address the question of whether sales of vacant parcels of land had been inflated by the general scarcity of vacant land in the area. 5. The applicant then brought a motion seeking an order that the respondent pay his costs of the proceedings before the Commissioner. That motion was heard by me on 24 February 2000. In a reserved judgment delivered on 14 April 2000 I declined to make any order for costs and dismissed the motion (Maurici v Chief Commissioner of State Revenue [No. 3] (2000) 107 LGERA 222). In dismissing the motion for costs I applied cl 10A of the Court's Practice Direction 1996, which is as follows: The practice of the Court is that no order for costs is made in valuation appeals, farmland rating appeals (and other rating appeals) and subdivision appeals in Class 3 of the Court's jurisdiction, unless the circumstances are exceptional. 6. I found that there were no exceptional circumstances and dismissed the motion for costs. 7. An appeal was brought against both the decision of Cowdroy J and my decision on costs. The Court of Appeal allowed (in part) the appeal from the decision of Cowdroy J, set aside the orders that he made and in lieu thereof ordered that the appeal from the decision of Commissioner Nott be dismissed with costs (Maurici v Chief Commissioner of State Revenue [No. 4] (2001) 114 LGERA 376). The effect was that Commissioner Nott's decision was restored. 8. The Court of Appeal also allowed the appeal against my decision on costs. The Court of Appeal held (at 385-6) that a Practice Direction issued by a Head of Jurisdiction is not a rule of court and that it inappropriately purported to impose a rigid fetter on the judicial discretion as to costs conferred by s 69(2) of the Land and Environment Court Act 1979, which provides that costs are in the discretion of the Court. It was observed that appellate courts have held more than once that judges should not fetter judicial discretions with self-imposed rigid rules. The Court of Appeal held that I erred in treating cl 10A of the Practice Direction as applicable to the case and by confining attention to the question of exceptional circumstances. The exercise of my discretion therefore miscarried. The Court of Appeal set aside my orders and remitted the motion for costs to this Court for re-hearing. The Submissions of the Parties The Applicant's submissions 9. Mr C Birch SC, who (with Mr J Stoljar) appears for the applicant, made the following submissions: (1) I am bound to follow the Court of Appeal which held in Maurici [No. 4] that cl 10 of the Court's Practice Direction was an impermissible fetter on judicial discretion and that it ought not, in any case, be applied to land tax appeals which were qualitatively different from valuation appeals, for the reasons set out by Handley JA, namely: (a) that it would be anomalous if such appeals in this Court did not attract orders for costs, because land tax appeals are also heard in the Supreme Court where the parties have the risk and benefit of costs orders; (b) that objectors to land tax assessments ought not to be faced with the unpalatable choice between submitting to an excessive tax assessment, or having to meet their own costs of a successful appeal, particularly if the costs of fighting the appeal could exceed the value of the tax in dispute; and (c) the Practice Direction was not declaratory of the practice of the Court because the reported cases reflect a difference of views on the appropriateness of ordering costs in valuation appeals. (2) There have been taxation cases in other jurisdictions in which costs have been allowed where the taxpayer has succeeded in achieving some reduction, even though it was not down to the figure for which the taxpayer contended. It is submitted that these cases reflect a principle that a citizen who receives a demand for tax and has to make a determination whether or not to contest it ought not to be subject to the additional injustice or unfairness of having to bear the costs of contesting the assessment which may be so great as to deprive him or her of any real value if successful. (3) As found by the Court of Appeal, s 69(2) confers a very broad discretion which cannot be fettered by self-imposed restrictions, so that the Court is always bound to consider all relevant circumstances in determining a costs application. It is submitted that the relevant circumstances of this appeal are as follows: (a) The applicant should be entitled to receive his costs at least up until the date on which he received the respondent's letter dated 26 August 1999 in which the respondent offered to settle for $2,000,000, but did not offer to pay the applicant's costs. In a statement of evidence attached to the letter, the valuer conceded that the original valuation of $2,440,000 was due to an oversight in that it had always been intended to review and reduce land values in Hunter Hill, whether or not an objection was received. This concession was received nearly ten months after the original objection was lodged, after substantial expense had already been incurred in preparing the proceedings in this Court, and only a fortnight before the matter was set down for hearing. (b) In the present case, the appeal was substantially successful. As a result of bringing the proceeding the applicant achieved a reduction in land value of about $500,000 from the original assessment. The Respondent's Submissions 10. Mr B J Preston SC, who (with Miss J H H Blackman) appears for the respondent, made the following submissions. (1) Even if the Practice Direction is regarded as being of no force or effect, the principle described therein remains a source of guidance as to the exercise of the Court's discretion and reflects the Court's previous practice. (2) The Court ought only order costs if it is fair and reasonable for one party to pay all or some of the costs of the other party. (3) It is not appropriate for costs orders to be made in an administrative appeal. (4) The applicant was substantially unsuccessful, having contended for a valuation of $1,250,000 and the applicant's valuers' methodology was rejected by the Commissioner. 11. As to the submission that the respondent should pay the applicant's costs up to the date of the offer of 26 August 1999, the respondent submits that this should not influence the costs discretion as the applicant cannot prove that if the offer had been made at an earlier point of time the applicant would not have proceeded with the appeal. Conclusions 12. In approaching the resolution of this question I am prepared to ignore the Practice Direction, which has been effectively set aside by the Court of Appeal as being an impermissible fetter on the exercise of the judicial discretion as to costs conferred by s 69(2) of the Land and Environment Court Act 1979. As noted above, that section relevantly provides that costs are in the discretion of the Court. 13. The approach to be adopted in the exercise of the Court's discretion was explained by Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72 at 81: The terms of s 69(2) contain no positive indication of the considerations upon which the Court is to determine by whom and to what extent costs are to be paid. The power conferred by the section is to be exercised judicially, that is to say not arbitrarily, capriciously or so as to frustrate the legislative intent. However, subject to such considerations, the discretion conferred is, to adapt the words of Dixon J, unconfined except in so far as "the subject matter and the scope and purpose" of the legislation may enable an appellate court to pronounce the reasons given by the primary judge to be "definitely extraneous to any objects the legislature could have had in view" (Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 494 at 505 ). 14. It is relevant, in my view, that the proceeding was an administrative appeal against a determination by a public servant. Stein J noted in Murray Publishers Pty Ltd v Valuer-General (1994) 84 LGERA 13 at 16 (a valuation appeal) that administrative review matters in class 3 of the Court's jurisdiction are analogous to planning and building appeals in classes 1 and 2of the Court's jurisdiction. The hearings are usually of an administrative nature and devoid of complex legal principles. Murray Publishers pre-dates the making of cl 10A of the Practice Direction. His Honour reviewed the then practice of the Court in valuation and similar appeals and concluded that the preponderant (but not unanimous) practice was that there should generally be no order for costs in such appeals. I conclude from this that there is a general tendency against the making of orders as to costs in administrative appeals. 15. The applicant relies upon the fact that the present proceeding is a land tax appeal rather than a valuation appeal. As was noted by Handley JA in the Court of Appeal, different considerations apply to appeals from taxation assessments levied by the State. Land valuations, however, are made for the purpose of levying rates and taxes by both local government councils and by the State. In the present case the value of the land was the basis for the tax. Although there may be a difference in truth between an appeal against an assessment for land tax and an appeal against a valuation of land, it seems to me that there is really no difference in substance or effect. This is illustrated by the present proceeding, in which the sole issue was the question of the unimproved value of the applicant's land. I do not, therefore, place much reliance on this submission. 16. The applicant also relies upon the observation of Handley JA in the Court of Appeal that a taxpayer should not be faced, by a Practice Direction of the Court, "with the unpalatable choice between submitting to an excessive tax assessment, or having to meet his own costs of a successful appeal". It seems to me that the difficulty with this observation is that it is not carried to its obvious conclusion. If a taxpayer is unsuccessful in his challenge to the tax assessment he may have to face the even more unpalatable possibility of paying the costs of the other side. Mr Birch SC submits that there is a disincentive for a taxpayer to appeal if he has to bear his own costs, with no prospect of recovering these costs if he is successful. It seems to me that there may be a greater disincentive if he knows that he may have to pay not only his own costs but also the costs of the other side if the appeal is unsuccessful. I do not, therefore, place much reliance on this submission. 17. A number of cases in which costs have been ordered in taxation appeals were referred to in argument. I do not find any of them to be of much assistance. 18. In In re the Estate of Murray (1961) 62 SR (NSW) 485, the appellant had succeeded in securing a significant reduction in the amount of stamp duty payable from the assessment of the Commissioner of Stamp Duties and the Commissioner was ordered to pay the costs. That case, however, was a true tax case in which it was necessary to determine the amount of duty payable. The taxpayer was found to have achieved a significant reduction in liability. Most importantly the case was one of principle and the Commissioner failed in sustaining his assessment in point of principle. The outcome was also affected by the application of a special provision relating to costs in the Stamp Duties Act 1929, s 124(8), which stated that the Court should have regard to the "extent to which the Commissioner's assessment is sustained or otherwise" (inter alia). 19. Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547 was an appeal against an assessment for estate duty. Although the Court ordered the unsuccessful respondent to pay the successful appellant's costs, no reasons were given for such order. This case is not, therefore, of particular assistance. 20. Executors of Estate of Bruce-Smith v Federal Commissioner of Taxation (1973) 130 CLR 340 was another appeal against an assessment for estate duty. The appellants contended for a figure which was very close to that which the Court ultimately determined and much of their evidence was consistent with that view and so they were substantially successful in their appeal. The Court ordered the respondent to pay the appellants' costs. In contrast to that case, however, the figure found by Commissioner Nott in the present case was not close to that for which the present applicant contended, and neither was the methodology of the applicant's experts generally favored by the Commissioner. 21. I turn now to the facts and circumstances of the present case. The respondent's offer, made only two weeks before the hearing, is said by the applicant to have been made at a time by which the applicant had incurred considerable costs in preparing for the hearing. I do not see this as having any bearing on the question in this case. The applicant did not accept the offer. On the contrary, the applicant pressed at the hearing for a land valuation of $1,250,000, as against a valuation of $2,000,000 as contended for by the respondent. 22. It is correct to say that if the applicant had not commenced the proceeding he would not have achieved any reduction below the original valuation of $2,440,000. If the applicant had accepted the respondent's offer of $2,000,000 he would, in my opinion, have had a strong argument for an order for his costs in the light of the considerable costs incurred in preparing his case, which costs would have been unnecessarily incurred. But that is not the case here. The whole of the applicant's argument and the methodology propounded by his expert evidence was directed at a valuation of $1,250,000. Even if one were to apply the ordinary principle that costs normally follow the event, the argument for an order for costs is not particularly strong. Commissioner Nott's determination was only $50,000 less than the valuation contended for by the respondent at trial. Having regard to the two sums in issue, the extent to which the respondent's assessment has not been sustained is only marginal. 23. In my opinion, in the exercise of the Court's unfettered discretion under s 69(2) of the Land and Environment Court Act and having regard to: (1) the fact that the proceeding is to be regarded as an administrative appeal; (2) that the preponderant weight of authority in this Court (pre-dating cl 10A of the Court's Practice Direction 1996) is that costs are not generally awarded in such administrative appeals; (3) that the ordering of costs would present prospective applicants with the unpalatable prospect of not only meeting their own costs but also the costs of the respondent if they were unsuccessful; and (4) the particular facts and circumstances of the present case (noted in pars [20] to [22] above) I am inclined to the view that there should be no order as to costs. 24. In accordance with the principle explained in McDonald v Mosman Municipal Council [No. 2] (2000) 107 LGERA 211 at 215-216 pars [15] to [18], the applicant must pay the costs of this motion for costs. 25. The formal orders of the Court are (1) The applicant's motion for costs is refused. (2) The applicant must pay the costs of the motion for costs. I hereby certify that the preceding 25 paragraphs are a true copy of the reasons for judgment herein of the Honourable Mr Justice Lloyd. Associate Dated: 14 December 2001 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.