Supreme Court New South Wales Medium Neutral Citation: Stubbs v Chief Commissioner of State Revenue [2019] NSWSC 307 Hearing dates: 14 February 2019 Date of orders: 26 March 2019 Decision date: 26 March 2019 Jurisdiction: Equity Before: Ward CJ in Eq Decision: 1. There be no order as to the costs of the proceedings, with the intent that each party should pay its own costs. Catchwords: COSTS –– application by the plaintiff for review of assessment notices issued by the defendant –– proceedings run by both parties on issues that ultimately did not arise for determination –– consent orders agreed and notices revoked –– no order as to costs –– parties each to bear own costs –– misapprehension by both parties as to the issues for determination Legislation Cited: Civil Procedure Act 2005 (NSW) , ss, 56 – 59, 98 Duties Act 1997 (NSW), ss 8(1)(b)(ii), 8(3), 9(1), 9(2), Ch 2 Taxation Administration Act 1996 (NSW), ss 4 and 8. Uniform Civil Procedure Rules 2005 (NSW), r 42.1 Cases Cited: Harrington v Greenwood Grove Estate Pty Ltd (No 2) [2011] NSWSC 1598 Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 Molnar v Butas (No 2) [2017] VSC 710 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Williamson v Bors (1900) 21 LR (NSW) Eq 302 Texts Cited: G E Dal Pont, Law of Costs (Lexis Nexis, 3rd ed) Category: Costs Parties: Derek Stubbs (Plaintiff) Chief Commissioner of State Revenue (Defendant) Representation: Counsel: C Bevan (Plaintiff) R Seiden SC and S Kanagaratnam (Defendant) Solicitors: Piper Alderman (Plaintiff) NSW Crown Solicitor's Office (Defendant) File Number(s): 2018/00214535 Publication restriction: Nil Judgment 1. HER HONOUR: Before me for hearing on 14 February 2019 was an application by the plaintiff, Mr Stubbs, for review of two Notices of Assessment of Duty issued to him in 2018 by the defendant, the Chief Commissioner of State Revenue. 2. The issue raised for consideration in the proceedings at that stage was whether two documents made on 29 January 2015 constituted declarations of trust within the meaning of ss 8(1)(b)(ii) and 8(3) of the Duties Act 1997 (NSW) (Duties Act) such that duty was imposed in accordance with s 9 of the Duties Act and, if so, at what rate. There was no contest as to the factual background to the dispute (which is summarised briefly below) and no witnesses were called at the hearing on 14 February 2019. 3. The plaintiff, in written submissions in advance of the hearing on 14 February 2019 identified seven issues as arising for determination under the reasoning in the defendant's Objection Decision, including whether the relevant documents were "legally ineffective instruments" under the trust law principles which inform declarations of trust. The defendant's written submissions, forwarded before receipt of the plaintiff's written submissions, raised as the principal question for determination whether the relevant documents fell within the statutory definition of "declaration of trust" in s 8(3) of the Duties Act. 4. Neither party's written submissions nor any of the other material before the Court (as to the objections lodged by the plaintiff; the decision to disallow the objections; and the parties' appeal statements), raised any issue as to whether (assuming the documents were dutiable transactions, as the defendant contends) the assessment notices had been issued to the correct taxpayer (by reference to the definition of "transferee" in s 9 of the Duties Act). That issue only emerged in the course of the defendant's oral submissions at the hearing in response to a question raised by me with Senior Counsel for the defendant (see T 31.31ff). 5. That issue having been raised, the defendant properly conceded that the operation of ss 9(1) and (2) of the Duties Act (i.e., that it was the declarant of a declaration of trust, not the beneficiary, upon whom liability for duty was imposed) meant that the plaintiff was not the correct taxpayer and that the notices of assessment should be withdrawn (see T 41.1ff). 6. There was some debate (understandably since there had by then been half a day's hearing as to the issues that had been identified by the plaintiff as the issues for determination at the hearing) as to whether agreement might be reached as to a regime whereby the parties might be bound by any ruling on the substantive issues that had been argued (it being contemplated that there might be some undertakings given to achieve such a regime – though, of necessity, that would require consent by persons or entities not presently party to the proceedings; i.e., the declarants themselves) (see T 41.8ff). On that basis, I heard the balance of the defendant's oral submissions (and the plaintiff's reply submissions); made certain directions to facilitate the filing of any undertakings that might be forthcoming in relation to such a regime; and otherwise reserved my judgment. 7. What then transpired was that the parties forwarded consent orders, which I made in chambers on 1 March 2019, the effect of which was to dispose of the plaintiff's summons by allowing the appeal and revoking the notices of assessment. The question of costs, by consent, was reserved to be dealt with on the papers following the exchange between the parties of brief written submissions. 8. In the 1 March 2019 consent orders, I noted the parties' agreement that the summons was dismissed "upon the sole ground that the plaintiff is not, and cannot be made, the party who is liable for any ad valorem duty, which is found by the Court to be payable upon the instruments or transactions which are the subject of the assessments referred to …, by virtue of the operation of s.9(2), Table item 3, of the Duties Act 1997 upon its proper interpretation". I also noted the parties' agreement to expedite the issue of new assessments to a company associated with the plaintiff (Benidorm Pty Ltd), to which I refer below, as trustee of the trust the subject of the instruments or transactions that had been assessed to ad valorem duty in the assessments that were then being revoked; as well as the expedition of the lodgement of an objection to those assessments, making of an objection decision; and filing of a summons against any adverse decision made on that objection – with a view to the expeditious case management and hearing of any such summons. 9. That leaves the sole issue now remaining in the proceedings as the issue of costs. The plaintiff maintains that there should be an order for costs in his favour. The defendant argues that, in the circumstances of this case, there should be no order as to costs. For the reasons that follow, I am of the view that there should be no order as to the costs of the proceedings, with the intent that each party bear its own costs. Background 1. On 1 May 2007, Benidorm Pty Ltd (Benidorm) was incorporated. A solicitor (Mr Dawson), acting on the instructions of a resident of Guernsey (who is now deceased and to whom I will refer as the Purchaser) was the sole director and shareholder of Benidorm. 2. By declaration dated 16 May 2007, Mr Dawson acknowledged that he had acquired ten shares in Benidorm at the request and cost of the Purchaser and that he held those shares in trust for the Purchaser absolutely (the First Declaration of Nominee). Also on that date, Benidorm entered into a contract for the purchase of an apartment in Sydney (the Property). It is not disputed that the real purchaser of the Property was the Purchaser, he having provided Benidorm (the apparent purchaser) with the purchase price. 3. On 31 May 2007, Benidorm (as Trustee) and the Purchaser (as Beneficiary) entered into a deed under which Benidorm declared that it had entered into the contract for the purchase of the Property on behalf of the Purchaser and that it held the Property in trust for the Purchaser (the First Declaration of Trust). Also on that date, each of Benidorm, Mr Dawson and the Purchaser entered into a Custodian Agreement, setting out the arrangements between them so long as Benidorm held the Property. 4. On 27 June 2007, completion of the sale of the Property took place. 5. On 13 September 2013, the Purchaser died. By his last Will, the Purchaser appointed his partner (the plaintiff) as his sole executor and left his estate to the plaintiff absolutely. On 6 December 2013, a grant of probate of the Purchaser's Will was issued in Guernsey and on 23 December 2014 the grant of probate was re-sealed in this Court. 6. On 29 January 2015, Benidorm (as Trustee) and the plaintiff (as New Beneficiary) executed a deed under which, among other things, Benidorm declared that it will hold the Property as nominee for the New Beneficiary on the same terms as the First Declaration of Trust (the Second Declaration of Trust). Also on 29 January 2015, Mr Dawson, by a letter headed "Declaration of Nominee", acknowledged that as a consequence of the Purchaser's death and the operation of his Will, Mr Dawson now held the shares in Benidorm in trust for the plaintiff absolutely (the Second Declaration of Nominee). These are the two instruments, or transactions, on which the defendant assessed duty (see below) and which are the subject of the present proceedings. 7. On 12 February 2015, Mr Dawson presented the First Declaration of Trust, First Declaration of Nominee, Second Declaration of Trust and Second Declaration of Nominee to the defendant for stamping. 8. On 22 February 2018, the defendant issued the plaintiff with a Notice of Assessment referable to the Second Declaration of Trust, on the basis that the Second Declaration of Trust was a declaration of trust as apprehended by s 8(3) of the Duties Act and was chargeable to duty under Chapter 2 of the Duties Act and that no exemption or concession applied. 9. On 21 March 2018, the defendant issued the plaintiff with a Notice of Assessment referable to the Second Declaration of Nominee, on the basis that the Second Declaration of Nominee was a declaration of trust, and was chargeable with nominal duty of $10.00. (Each of the First Declaration of Trust, First Declaration of Nominee and Second Declaration of Nominee was stamped by the defendant on 20 April 2018 with nominal duty of $10.00.) 10. Objections were lodged by the plaintiff (on 20 and 22 March 2018) to the respective Notices of Assessment. Those objections were disallowed by the defendant on 26 June 2018. On 12 July 2018, these proceedings were commenced by the plaintiff. As adverted to above, the grounds of objection, objection decision and the parties' Appeal Statements in these proceedings focussed on the questions as to whether the two documents constituted declarations of trust as apprehended by the Duties Act and, if so, whether an exemption or concession applied. 11. As adverted to above, during the course of the defendant's oral submissions when reference was made to the operation of ss 9(1) and (2) of the Duties Act, the defendant accepted that, in the circumstances of this case, the transferees (liable for any duty charged by Chapter 2 of the Duties Act) were, respectively, Benidorm (see the Second Declaration of Trust) and Mr Dawson (see the Second Declaration of Nominee); and thus that (leaving aside the dispute as to whether those documents constituted dutiable transactions) the plaintiff is not the person liable to duty in respect of either the Second Declaration of Trust or the Second Declaration of Nominee. It is accepted that the issue as to whether the plaintiff was the correct taxpayer was not an issue that had been raised during the objection process, appeal statements or written submissions filed in advance of the hearing before me. Costs 1. The parties' respective positions in relation to costs can also be briefly stated. 2. The plaintiff seeks an order that the defendant pay the costs of the summons on the basis of the general rule that, ordinarily, costs follow the event (see r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR)), arguing that the event in the present case is the grant of all the relief claimed in the summons (i.e., the appeal being allowed and the assessment notices revoked). The plaintiff refers to the principles as to costs articulated by the High Court in Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 (Latoudis) (at 561 per Dawson J; 562 per Toohey J; and 566-567 per McHugh J, Mason CJ agreeing at 544) and in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 (at 97). 3. The plaintiff emphasises that in Latoudis Mc Hugh J said that the reason for interfering with the general rule should be "a reason directly connected with the ... conduct of the proceedings [by the successful party]" (see at 566F). 4. The plaintiff says that this is an unusual case in that the summons proceeded to a full hearing but the relief sought was finally granted by consent "solely because of the admission made by the defendant/Chief Commissioner that he had assessed the wrong taxpayer to ad valorem duty" (assuming, which the plaintiff does not accept, that any duty is payable on the Second Trust Declaration). 5. The plaintiff argues that the defendant knows the terms of the Duties Act and has a statutory duty to administer the Act according to law (referring to ss 4 and 8 of the Taxation Administration Act 1996 (NSW)). The plaintiff submits that there is "no legitimate reason to interfere with the operation of the general rule" so as to deprive him of his costs in the circumstances of this case. 6. The defendant (who accepts that the circumstances of this case are "somewhat unusual"), submits that no order as to costs should be made. (Although in the plaintiff's written submissions on costs there was reference to a proposal that had apparently been made by the defendant in correspondence with the plaintiff for a different costs regime, that was not put forward by way of written submissions and need not here be considered.) 7. The defendant notes that in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34, Gleeson JA (with whom Macfarlan and Leeming JJA agreed) said (at [98]) that the idea underlying both s 98 of the Civil Procedure Act 2005 (NSW) and r 42 of the UCPR is "that costs should be paid in the way that is fair in regard to what the Court considers to be the responsibility of each party for the incurring of costs". 8. The defendant submits (as can hardly be disputed) that the success of the plaintiff in these proceedings is not due to success in respect of the determination of whether the Second Declaration of Trust and the Second Declaration of Nominee constitute declarations of trust (i.e., are dutiable transactions); and if so, whether they are subject to an exemption or concession, the focus of the proceedings (those being matters, which though argued before me are yet to be determined). Reference is made to the observation made in Dal Pont, Law of Costs (Lexis Nexis, 3rd ed) at [8.43], citing Williamson v Bors (1900) 21 LR (NSW) Eq 302 at 302, that "where a litigant succeeds in a case not on any merits of his or her own but, say, on a technicality, it is open to the court to make no costs order in his or her favour". 9. The defendant submits that in circumstances where the plaintiff has succeeded in having the Notices of Assessment withdrawn on a ground that was not the subject of his objection, appeal statement, submission or argument and arose only on the day of the hearing (and was then on the basis of consent by the defendant) the appropriate exercise of discretion is that there be no order as to costs. 10. It is submitted that the circumstances of this case are in principle analogous to those instances where a successful party may not receive some or all of its costs on the ground that the point on which it ultimately succeeded was raised late (reference there being made to Harrington v Greenwood Grove Estate Pty Ltd (No 2) [2011] NSWSC 1598 and Molnar v Butas (No 2) [2017] VSC 710). Determination 1. It is not disputed by the parties that the question of costs is within the discretion of the Court and that there is a wide discretion in this regard, though it should be noted that it is one that must be exercised judicially and with reference, among other things, to the overriding statutory mandate for the just, quick and cheap resolution of the real issues in dispute (see s 98 of the Civil Procedure Act 2005 (NSW) and ss 56-59 of that Act). 2. The starting point is the general rule that costs follow the event and, in the present case, the plaintiff has succeeded in obtaining the relief sought by him in his summons, which would suggest that in the ordinary course he should have his costs of the proceedings. 3. However, it is relevant in my opinion that the proceedings before me were run (by both parties) on issues that ultimately did not arise for determination (since it was accepted that the assessment notices had not been issued to the correct taxpayer, even assuming the defendant's contention that the relevant documents are dutiable as declarations of trust were to be correct). 4. That misapprehension affected both parties, the responsibility for which cannot in my opinion be attributed to either party exclusively. True it is that the defendant has the responsibility (and statutory duty) of administering the relevant taxation legislation. However, the plaintiff had the benefit of legal advice throughout and the issue was not identified in any of the material or submissions prepared on his behalf. 5. Once the issue was identified the defendant promptly conceded that the assessment notices must be withdrawn. There is no reason to think that had the issue been identified at an earlier stage that would not have been the defendant's position at that time. 6. Thus, due to no misconduct or particular fault on the part of one side (at the expense of the other) both parties proceeded under the mistaken apprehension that the issues for determination in the proceedings were as outlined in their respective submissions and the case was argued on that basis. Although it may readily be accepted that, without commencement of the proceedings, the plaintiff would not have obtained the relief he did in the proceedings, it does seem to me that the fair way of attributing the costs of the case is that each party should bear its own costs. There was a day of hearing on issues that did not ultimately arise for determination but due to a point that was only raised in debate during the course of the defendant's oral submissions. I accept the defendant's submission that, in the circumstances of this case, the order that most fairly reflects the conduct of the parties is that there be no order as to costs and I will so order. Order 1. For the above reasons I make the following order; 1. There be no order as to the costs of the proceedings, with the intent that each party should pay its own costs. ********** 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: 26 March 2019