New South Wales Supreme Court CITATION : Commissioner of Taxation v Evenfont (No. 2) [2009] NSWSC 9 HEARING DATE(S) : Written submissions JUDGMENT DATE : 30 January 2009 JUDGMENT OF : Bell JA at 1 Vary the costs order pronounced on 22 December 2008 as follows: 1. The plaintiff is to pay the defendants' costs up to and including 23 March 2007 on the ordinary basis and on and from 24 March 2007 on the indemnity basis. 2. The plaintiff is the pay the defendants' interest on the defendants costs provided that: (a) the interest shall be payable on such of those costs as are allowed on assessment; DECISION : (b) the interest shall be calculated at the rates prescribed in Schedule 5 to the Uniform Civil Procedure Rules 2005 (NSW); (c) the interest shall commence to accrue from the dates upon which the said allowed costs were paid to the defendants' solicitors; and (d) the interest shall accrue upon the earlier of: (i) the date that the said interest allowed costs are paid by the plaintiff to the defendants and, (ii) if the amount of the said allowed costs is lower than an amount offered in writing to be paid by the plaintiff to the defendants, the date that is 14 days after the date of such offer. CATCHWORDS : EXCISE PROSECUTION - costs Civil Procedure Act 2005 (NSW) LEGISLATION CITED : Customs Act 1901 (Cth) Excise Act 1901 (Cth) Uniform Civil Procedure Rules 2005 (NSW) CATEGORY : Consequential orders Chief Executive Officer of Customs v Corniche Motors Pty Ltd (2006) 65 ATR 236; [2006] WASC 280 Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49; 216 CLR 161 CEO Customs v Afiouny [2007] NSWSC 724 Chief Executive Officer of Customs v Mak (2002) A Crim R 562; [2002] WASC 235 Commissioner of Taxation v Evenfont [2008] NSWSC 1371 CASES CITED : Chief Executive Officer of Customs v Evenfont [2007] NSWSC 431 Goulding v Penello (1999) 43 ATR 179; [1999] WASC 192 Gretton v Commonwealth of Australia [2007] NSWSC 149 Lahoud v Lahoud [2006] NSWSC 126 Latoudis v Casey [1990] HCA 59; 170 CLR 534 Leichhardt Municipal Council v Green [2004] NSWCA 341 The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; 67 NSWLR 706 Commissioner of Taxation (Plaintiff) Evenfont Pty Limited (1st Defendant) PARTIES : Truegain Pty Limited (2nd Defendant) Robert Lenard Pullinger (3rd Defendant) Paul Andrew Lucas (4th Defendant) FILE NUMBER(S) : SC 20013/99 COUNSEL : R M Goot SC / R Wilson (Plaintiff) D P Robinson SC / J Horowitz (Defendants) SOLICITORS : Australian Government Solicitor (Plaintiff) Horowitz & Bilinsky (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION BELL JA Friday 30 January 2009 20013/99 Commissioner of Taxation v Evenfont (No. 2) JUDGMENT 1 BELL JA: On 22 December 2008 orders were pronounced dismissing the second further amended statement of claim (the 2FASOC) and directing the plaintiff to pay the defendants' costs: Commissioner of Taxation v Evenfont [2008] NSWSC 1371 (the principal judgment). Each of the parties sought to be heard on the terms of the costs order. Counsel for the defendants tendered an offer of compromise which had been conveyed to the plaintiff on 23 March 2007. The defendants sought to vary the order by substituting an order that the plaintiff pay the defendants' costs up to and including 23 March 2007 on the ordinary basis and on and from 24 March 2007 on an indemnity basis. They also sought an order for interest on their costs calculated at the rates prescribed in Schedule 5 to the Uniform Civil Procedure Rules 2005 (NSW) (the UCPR), from the date on which the costs were paid to their solicitor. 2 Mr R Wilson who appeared on the plaintiff's behalf opposed the making of the order on an indemnity basis. He foreshadowed an application by the plaintiff to vary the order to deprive the defendants' of a proportion of their costs arising out of the conduct of the defence case. 3 Directions were given for the filing of any further evidence and written submissions. The parties were agreed that, subject to either indicating his or their wish to have the proceedings listed for further oral hearing, the matter would be determined on the papers. 4 Pursuant to the directions, the plaintiff filed the affidavit of Peter James Swinton, which was sworn on 16 January 2009, together with written submissions dated 16 January 2009. Written submissions were filed on the defendants' behalf on 21 January 2009. Neither party sought to have the matter listed for further oral submissions. 5 In the plaintiff's written submissions the foreshadowed application to vary the costs order was made. The terms of the variation sought were not identified with precision. The thrust of the submission was that the conduct of the defendants, including in failing to file evidence until after the close of the plaintiff's case and in not proffering any explanation during the course of the investigation had lengthened the trial. This much, it was said, was demonstrated by the way in which the proceedings "achieved focus following the filing of the defence evidence". It was submitted that the saving could not be precisely ascertained, but that it would appropriate for the Court to order that the plaintiff pay only a proportion of the defendants' costs. (WS [10]) 6 The proceedings were commenced by the filing of the statement of claim on 20 January 1999. The proceedings are an Excise prosecution under Pt XI of the Excise Act 1901 (Cth) (the Act), by which the plaintiff charged the defendants with offences contrary to subs 120(1)(iv); subs 120(1)(vi)(A) and s 61 of the Act. 7 An offer of compromise, expressed to be in accordance with r 20.26 of the UCPR, was served on the plaintiff under cover of a letter dated 23 March 2007, in the following terms: The Defendants offer to compromise the Plaintiff's claim on the following basis: 1. That judgment be entered in favour of the defendants; and 2. That each party bear its own costs. This offer shall remain open until 13 April 2007. 8 Rule 42.15A of the UCPR provides that in a case in which a defendant makes an offer before the first day of the trial and obtains an order or judgment as favourable or more favourable than the terms of an offer, unless the court orders otherwise, he or she is entitled to an order against the plaintiff for the defendant's costs assessed on the ordinary basis up to the beginning of the day following the day on which the offer was made and on an indemnity basis thereafter. 9 The power to award costs in an Excise prosecution is conferred by s 152 of the Act, which provides: In an Excise prosecution, whether commenced before or after the commencement of this section, a court may award costs against a party, and, where an amount of costs is awarded against a party other than the prosecutor, section 148 and any provision of a law of a State or Territory that, by virtue of an Act other than this Act, applies in relation to the recovery of pecuniary penalties under this Act apply in relation to the recovery of the amount of costs so awarded as if it were a pecuniary penalty adjudged to be paid by the party under this Act. 10 The plaintiff submitted that the general words of s 152 confer a discretion that is truly at large and which cannot be subject to the provisions of the UCPR, which, subject to the discretion to "order otherwise", visit a costs sanction on the non-acceptance of an offer of compromise in the stated circumstances. The question to be asked, it was said, was simply "should an award of costs be made against a party?". In the plaintiff's submission, the breadth of the discretion conferred by s 152 is such that the general principle stated in Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, that ordinarily it would not be just to deprive a successful defendant of his or her costs, does not operate even as a guideline (WS [5]). 11 Section 136 of the Act, provides that Excise prosecutions may be commenced, prosecuted and proceeded with in accordance with the usual practice and procedure of the court in civil cases. The defendants submitted that s 152 is to be read with s 136 and that the provisions of the UCPR, including rules 20.26 (the form of offers of compromise); 42.1 (the general rule is that costs follow the event) and 42.15A (relevantly, summarised at [8] above) form part of the usual practice and procedure of the Court and apply to the conduct of Excise prosecutions. 12 The hybrid nature of Excise prosecutions which possess characteristics of both criminal and civil proceedings is explained in Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49; (2003) 216 CLR 161. As the defendants noted, courts have sanctioned the compromise of Customs and Excise prosecutions: Chief Executive Officer of Customs v Corniche Motors Pty Ltd [2006] WASC 280; (2006) 65 ATR 236; Chief Executive Officer of Customs v Mak [2002] WASC 235; (2002) A Crim R 562; Chief Executive Officer of Customs v Corniche Motors Pty Ltd [2006] WASC 280 at [7]; Goulding v Penello [1999] WASC 192; (1999) 43 ATR 179. In none of these cases was the application of the rules of court providing for offers and costs sanctions the subject of consideration. 13 In CEO Customs v Afiouny [2007] NSWSC 724 Studdert J rejected a submission that the usual order for costs should not be made in favour of a successful defendant in a Customs prosecution. His Honour referred to s 247 of the Customs Act 1901 (Cth), which is in the same terms as s 136 of the Act, and observed that the provisions of the UCPR were attracted; at [23]. The decision is consistent with the view that the usual practice and procedure of the Court embraces provisions of the UCPR dealing with costs orders, at least to the extent of the general rule that is stated in r 42.2. It seems to me that the mechanism under the UCPR for the service of offers and the prima facie costs consequences of non-acceptance (in a case in which the judgment is as favourable or more favourable to the offeror than the terms of the offer) are matters within the usual practice and procedure of the Court. The words of s 136 are apt to attract the operation of Pt 42 of the UCPR including r 42.15A. 14 The Court retains a discretion to "order otherwise" notwithstanding the non-acceptance of an offer made in accordance with the rules. 15 The plaintiff submitted that the Court would "order otherwise". In the plaintiff's submission, by their conduct, which was identified as restricting the plaintiff's access to witnesses, failing to proffer an explanation for the asserted anomalies, and refusal to serve their evidence prior to the close of the plaintiff's case, the defendants had deprived him of the opportunity to fairly assess their case: Gretton v Commonwealth of Australia [2007] NSWSC 149. 16 Annexed to Mr Swinton's affidavit of 16 January 2009 was an earlier affidavit sworn on 2 August 2007. This recited aspects of the history of the investigation. One week after the execution of a search warrant at the first defendant's, Evenfont Pty Limited's (Evenfont), refinery at Seven Hills, Mr Bilinsky, a solicitor who acts for Evenfont, wrote to the Australian Customs Service (Customs) identifying eight persons for whom he acted, each being a current employee of Evenfont. Mr Bilinsky advised of his instructions that none wished to speak to Customs without legal representation and that any contact by Customs should be made through his office. A month later Mr Bilinsky wrote a further letter to Customs nominating 19 individuals employed by Evenfont who had instructed him in the same terms as the earlier group. 17 In the written submissions filed on the plaintiff's behalf it is asserted that the defendants restricted Customs' access to material witnesses and that if Customs had unrestricted access to the witnesses whom it had sought to interview during the course of the investigation a significant saving in hearing time could have been achieved (at [10]). The fact that Evenfont employees instructed Mr Bilinsky that they did not wish to interviewed by Customs without having a legal representative present is not evidence that the defendants restricted Customs' access to witnesses. I would not, in any event, hold that a stipulation that a legal representative be present at an interview between a prospective witness and a Customs officer constituted a relevant restriction on access to the individual. The evidence did not establish that Customs endeavoured to make arrangements through Mr Bilinsky to interview any of the Evenfont employees for whom he acted. 18 Customs wrote to the fourth defendant, Mr Lucas, in mid-November 1998 and informed him that its Investigation Section was nearing completion of its inquiries regarding the operation of Evenfont and various associated entities and individuals. Mr Lucas was offered the opportunity of attending a formal interview before the decision was made whether charges were to be preferred in order to explain what were described as "apparent discrepancies" that had been noted by Customs. He was advised that there was no requirement for him to attend and to answer questions in relation to certain of the entities, but that under an Excise Regulation he must answer questions in relation to the production or manufacture of excisable goods. Mr Bilinsky responded to this invitation on Mr Lucas' behalf, declining the offer of a formal interview and expressing his client's willingness to answer questions submitted in writing. It appears that a letter in similar terms was sent by Customs to the third defendant, Mr Pullinger, and that Mr Bilinsky responded to it on Mr Pullinger's behalf in the same way. 19 It does not appear that Customs officers exercised any power under the Act or the Regulations to require either of the personal defendants to answer questions in relation to the production or manufacture of excisable goods nor was the invitation to submit questions in writing taken up. The statement of claim was served on defendants under cover of letter dated 21 January 1999. 20 Mr Swinton sets out the history of the proceedings in his affidavit noting the defendants' failure to serve their evidence before the trial. I will not recite it. It is set out in my reasons for excluding Mr Lucas and Mr Pullinger from the operation of any order or direction requiring that they file any affidavits on which they proposed to rely: Chief Executive Officer of Customs v Evenfont [2007] NSWSC 431 (the 2 May judgment). 21 On 26 February 2007 the plaintiff applied to vacate the date fixed for the trial because Mr Hastings QC who had been briefed to appear was no longer available. Mr Hastings had conducted the prosecution on the plaintiff's behalf in associated proceedings brought against Camile Trading Pty Limited (the Camile proceedings). The application was unsuccessful and the trial date of 30 April 2007 was confirmed. The relevant history is set out in the 2 May judgment at [34] – [35]. 22 By letter dated 7 March 2007 the defendants conveyed a Calderbank offer to the plaintiff, which was in the same terms as their subsequent offer made pursuant to the rules. The Calderbank offer was expressed to be open for a period of seven days. On 14 March 2007 Mr Swinton wrote to Mr Bilinsky saying that the plaintiff was not able to respond to the offer in the time allowed. He identified a number of factors as militating against the early consideration of the offer. The factors that he identified included that, "for some years now, all attention has been focussed on the Camile case"; Mr Hastings' likely unavailability and the need for any replacement counsel to absorb the defendants' evidence and the judgment in the Camile proceedings and the evidence in the present proceedings before advising; the absence of any evidence filed on the defendants behalf by which the plaintiff could "assess the strengths or weaknesses of your case or the prima facie conclusions which led to commence the proceedings" (Mr Swinton's affidavit, sworn on 16 January 2009, Annexure "PS 4"). Mr Bilinsky responded to this letter by letter dated 23 March 2007, which enclosed a formal offer of compromise expressed to be made under the Rules, open for acceptance until 13 April 2007. 23 On 10 April 2007 Mr Swinton wrote to Mr Bilinsky noting the defendants' contention that the Weekly Entries for Home Consumption submitted on Evenfont's behalf correctly reflected its production, observing that the assertion did not address the detail of the accusations made in the plaintiff's claim. To illustrate the point Mr Swinton set out two examples of anomalous entries in the red book. The letter continued: If your intention is to assist our client to understand your clients' position, we ask you to respond to this letter by close of business tomorrow, Wednesday, 11 April, 2007 indicating that your clients agree to: 1. file affidavit evidence prior to trial which addresses these issues, as well as the other allegations raised by the statement of claim and, furthermore, 2. vacate the present hearing dates in order to allow our client to consider, and file affidavit replies to, their material when it is filed. 24 The defendants did not file evidence prior to the trial or consent to the adjournment of the trial. The defendants did not volunteer to explain the asserted anomalies in the two examples set out in Mr Swinton's letter. On 18 April the plaintiff moved on a notice of motion claiming orders for summary judgment and Mr Pullinger and Mr Lucas sought leave to file a motion claiming orders relieving them from the requirement to serve their evidence before the close of the plaintiff's case. Both motions were stood over to 30 April 2007. The defendants' motion is the subject of the 2 May judgment. 25 Following receipt of the defendants' offer Mr Swinton reviewed the evidence given in the Camile proceedings. This did not serve to make clear that the re-dipping of tankers at the Seven Hills site would be relied upon as an explanation for the differences in the size of loads recorded in the red book and in the documentation submitted to Customs. In the event, the plaintiff was given leave to lead a case in reply on issues which included re-dipping. 26 The matters set out in Mr Swinton's affidavits at pars [7] to [9] are to be understood in light of the history set out in the 2 May judgment. 27 Rule 20.26 of the UCPR does not require that a defendant give particulars of his or her defence as a condition of a valid offer. In this respect the rules distinguish offers by defendants from offers by plaintiffs. 28 As at 23 March 2007 the proceedings were fixed for trial to commence on 30 April 2007. An offer made less than two months before the date set down for the commencement of the trial must be left open for such time as is reasonable in the circumstances: r 20.26(7). The plaintiff submitted that the offer was not open for a reasonable period. I do not accept that is so. The Calderbank offer made on 7 March 2007 should have caused the plaintiff to give serious consideration to his ability to establish his case to the criminal standard. The offer made on 23 March allowed three weeks for consideration. It is reasonable to expect that the plaintiff would have given close attention to his case by the date the offer expired, which was just over two weeks from the commencement of a lengthy fixture. 29 In Latoudis Mason CJ (at 544) and Toohey J (at 565) explained that in a summary prosecution one circumstance that may make it just and reasonable to refuse costs in favour of a successful defendant is where he or she refuses to offer an explanation, which could have avoided the prosecution. To the extent that such a consideration may be relevant in deciding whether to award costs in favour of a successful defendant in an Excise prosecution, or whether to order otherwise in a case in which the defendant seeks indemnity costs by reason of an offer made under the rules, this is not such a case. The plaintiff abandoned the prosecution of the charges pleaded in pars 68 to 141 of the 2FASOC on the first day of the trial. At the close of the evidence he conceded that a number of the transactions particularised in support of various of the charges pleaded in pars 18 to 67 and 142 to 146 could not be relied upon as establishing guilt: principal judgment at pars [79] – [80]. The plaintiff had access to the documents which revealed a fundamental difficulty in establishing the charges in the way that they were framed to the extent reliance was placed on the "undeclared loads": principal judgment at pars [84] – [89]. This is so without regard to consideration of the re-dipping of loads at the Seven Hills refinery. In relation to the "misdescribed transactions" it is appropriate to assess the plaintiff's submissions against the findings including: principal judgment at pars [135] and [168]. The plaintiff had the benefit of s 144 and the averments in the 2FASOC however the difficulties in establishing his case, in the event that any evidence was offered in rebuttal, were apparent on the material available to the plaintiff at the date of the offer. I do not consider the defendants' conduct in not serving their evidence in advance of the trial is a circumstance which makes it appropriate to deprive them of the prima facie entitlement to an order for their costs to be paid on the indemnity basis following service of their offer. 30 The other factors identified in Mr Swinton's letter, "PS 4", referred to at par [22] above, do not provide a basis for ordering otherwise under r 42.15A(2). 31 A defendant's offer to "walk-away" is within the rules: r 20.26(2). The purpose of the rules dealing with offers of compromise is the encouragement of the early settlement of litigation. It has been said that an offer which does not involve a real and genuine element of compromise will not be taken into account under general law principles or under the rules of court: The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (no 2) [2006] NSWCA 120; (2006) 67 NSWLR 706. As is explained in Leichhardt Municipal Council v Green [2004] NSWCA 341 in the context of a Calderbank offer, a defendant's offer to "walk-away" may evidence a real element of compromise. In this case the proceedings were commenced in 1999 and, as Mr Swinton notes, there had been numerous directions hearings up to 23 March 2007. It is reasonable to infer that significant costs had been incurred by the defendants in connection with the proceedings at the date of the offer. To the extent that a reason for withholding an order for indemnity costs in a case involving an offer made under the rules embodied any consideration of whether the offer involved a genuine element of compromise, I consider that this offer did. 32 The plaintiff submitted that the expert evidence which was adduced by the defendants was not determinative of any "real issue" in the proceedings and that the plaintiff ought not to be required to pay the defendants' costs of preparing and adducing the evidence. In the result the expert evidence was not determinative. This was because leave was granted to amend the claim to insert par 15C in the 2FASOC. The plaintiff's case depended on the pleading of par 15C in the way it was put in closing submissions: par [32] of the principal judgment. The expert evidence was relevant to the case pleaded in par 15A of the 2FASOC: pars [28] – [32] of the principal judgment. 33 In my opinion the plaintiff has not demonstrated either that he should be required to pay a proportion only of the defendants' costs or that circumstances make it appropriate for the purposes of r 42.15A(2) to order otherwise. 34 I turn now to the claim for interest on costs. Provision is made for the Court to order that interest be paid on any amount payable under an order for the payment of costs in s 101(4) of the Civil Procedure Act 2005 (NSW) (the CPA). It was not submitted that the Court did not have power to make an order for the payment of interest on costs. The plaintiff submitted that there was no evidence to establish when the costs, to which the payments relate, actually fell due for payment. In the plaintiff's submission, any order for interest should only allow for interest to run from the dates upon which the liability became due and payable. 35 Given the length of this litigation, I consider that it is appropriate to make an order for the payment of interest on costs. This serves to compensate the defendants for being out of pocket by being required by their own solicitor to pay costs from time to time over the years since the statement of claim was served. The relevant date is the date on which the defendants paid their solicitor. The plaintiff, by not being required to pay costs until some time in the future when the costs are agreed or assessed, has the advantage of the use of the amount of the costs: see Lahoud v Lahoud [2006] NSWSC 126 per Campbell J (as he then was) and the authorities cited therein at par [83]. I propose to make orders in the form of the draft minute of order proposed by the defendants. 36 For these reasons I make the following orders: ORDERS Vary the costs order pronounced on 22 December 2008 as follows: 1. The plaintiff is to pay the defendants' costs up to and including 23 March 2007 on the ordinary basis and on and from 24 March 2007 on the indemnity basis. 2. The plaintiff is the pay the defendants interest on the defendants' costs provided that: (a) the interest shall be payable on such of those costs as are allowed on assessment; (b) the interest shall be calculated at the rates prescribed in Schedule 5 to the Uniform Civil Procedure Rules 2005 (NSW); (c) the interest shall commence to accrue from the dates upon which the said allowed costs were paid to the defendants' solicitors; and (d) the interest shall accrue upon the earlier of: (i) the date that the said interest allowed costs are paid by the plaintiff to the defendants and, (ii) if the amount of the said allowed costs is lower than an amount offered in writing to be paid by the plaintiff to the defendants, the date that is 14 days after the date of such offer. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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