Federal Court of Australia

S.N.A Group Pty Ltd v Commissioner of Taxation (No 2) [2025] FCA 281

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 25.14(3) and r 40.02 of the Federal Court Rules 2011 (Cth), the respondent pay the applicant’s costs of and incidental to the proceedings QUD372/2023 and QUD373/2023 in a lump sum, to be fixed by a registrar:

a.    up to 11am on 7 December 2023 on a party and party basis; and

b.    thereafter on an indemnity basis

if not agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 25.14(3) and r 40.02 of the Federal Court Rules 2011 (Cth), the respondent pay the applicant’s costs of and incidental to the proceedings QUD372/2023 and QUD373/2023 in a lump sum, to be fixed by a registrar:

a.    up to 11 am on 7 December 2023 on a party and party basis; and

b.    thereafter on an indemnity basis

if not agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

LOGAN J:

1    Upon the pronouncement of orders disposing of each of the tax appeals (see S.N.A Group Pty Ltd v Commissioner of Taxation [2025] FCA 240 (principal judgment)), counsel for the applicants applied for a special order as to costs. These reasons for judgment must be read in conjunction with the principal judgment.

2    Reliance in support of that application was placed on offers to compromise the proceedings made on behalf of each of the applicants to the Commissioner by their solicitor as found in an affidavit of Mr Damien Gregory Bourke, dated 24 February 2025 but filed today by leave. It would obviously have been inappropriate earlier to have filed the affidavit because at that stage the judgment on the tax appeal was reserved. The affidavit was, however, served on the Commissioner shortly after its making. The application was, more particularly, that the Court should conclude that the orders disposing of the taxation appeals, constituted in terms of r 25.14(3) of the Federal Court Rules 2011 (Cth) (Rules), the obtaining of a judgment more favourable than the terms of one or more, if not each, of the offers which had been made to the Commissioner by the applicants, via their solicitors.

3    In particular, reference was made to an offer made in December 2023. The effect of which, it was submitted, was that the judgment obtained was more favourable and that, for the purposes of r 25.14(3), the Commissioner should pay the costs before 11 am on 7 December 2023, that being the second business day after the offer was served on a party and party basis and thereafter on an indemnity basis. It was on that indemnity basis that the special order was sought. It was submitted that this was the prima facie position and that it was for the Commissioner to demonstrate why it was that, in terms of a power under the Rules found in r 1.35, an order inconsistent with the position for which r 25.14(3) provides should be made.

4    The prescription in r 25.14 indicates the prima facie way in which the costs power granted to the Court by s 43 of the Federal Court of Australia Act 1976 (Cth) will be exercised. That power is discretionary and the reference to r 1.35 is consistent with the discretionary nature of that power. In other words, the Rules, by r 25.14, state a prima facie position from which, as a matter of an exercise of judicial discretion, there can be a departure.

5    The position is not one free from authority.

6    As to authority, the origin of the inspiration for the application made by the applicants would appear to be found in this observation by Spender J in Precision Pools Pty Ltd v Commissioner of Taxation (1992) 37 FCR 554 (Precision Pools), at 566–567:

I reject the suggestion that there is no power in the Commissioner to agree to receive moneys on the basis that if it were to be held subsequently that he had no right to be paid those moneys, the Commissioner would repay them. By s 4 of the Sales Tax Assessment Act 1992 (Cth), the Commissioner is given the general administration of that Act. The administration has to be bona fide and for the purposes of the Act. But it is a grant of a wide power and would encompass, for instance, the power to compromise proceedings in which he was a party or to make agreements or arrangements concerning the efficient management of a dispute to which he was involved.

7    That observation was cited with apparent approval by the Full Court in Commissioner of Taxation v Clark (No 2) (2011) 197 FCR 251 (Clark (No 2), at [22]). In turn, Clark (No 2) was acted on by a later Full Court in JMC Pty Ltd v Commissioner of Taxation (Costs) [2023] FCAFC 95 (JMC). In JMC, at [23], the Full Court stated:

As noted earlier, the Commissioner’s rejection of the offer of compromise was entirely reasonable. Of itself in the circumstances of this case, that is not sufficient to deny JMC’s entitlement to indemnity costs in accordance with r 25.14(3). The object of r 25.14 is to promote the early settlement of disputes. JMC acted consistently with this object and the overarching purpose referred to in section 37M of the Federal Court of Australia Act (Cth) (FCA Act). The intended effect of r 25.14(3) is substantially negated if inconsistent orders are routinely made under r 1.35 on the basis only that the rejection was entirely reasonable.

8    In JMC, the Full Court was confronted with an application of like kind to the present. The Court noted that the proceeding concerned was not a test case, neither were the present taxation appeals of that character. Unlike in JMC, the Commissioner’s rejection of the offer made in December 2023 was not grounded in internal policies concerning the settlement but rather on a much more case-specific consideration of the position as then known to the Commissioner in relation to the applicant’s case.

9    I must say that, although over some decades, I practised in this Court and others in revenue law litigation, I never encountered, either when I appeared for the Commissioner or for taxpayers, this type of application. Of course, r 25.14 did not then exist. But under the general law, a very similar position could be reached having regard to Calderbank v Calderbank [1975] 3 All ER 333 and offers of compromise made on what one might term Calderbank terms were possible.

10    The Taxation Administration Act 1953 (Cth) (TAA) draws a distinction, hardly unique to that Act, as between the effect of an assessment in taxation recovery proceedings and its effect in a statutory taxation appeal. In taxation recovery proceedings, a duly certified assessment is conclusive evidence that the amount is owed and that the particulars of the assessment are correct. Not so on a taxation appeal. The applicant in a taxation appeal bears the onus of proving the assessment concerned to be excessive: see s 14ZZO of the TAA.

11    The position under the TAA at present reflects a very long-standing bifurcation between taxation recovery proceedings and proceedings by way of the statutory appeal in this Court’s (and earlier courts) original jurisdiction. Recourse to a court exercising the power of the Commonwealth to challenge on the merits a claim of liability as to taxation is necessary for the validity of laws imposing taxation.

12    In other words, the limits of Commonwealth constitutional legislative competence in relation to laws with respect to taxation would be exceeded if they were not provision for recourse by a person assessed to the judicial power of the Commonwealth to determine whether that taxation liability existed. There is no taxation by executive fiat or legislative decree per se which is valid in the absence of a recourse to the judicial branch to challenge assessments on the merits.

13    That noted, the bifurcation means that the present proceeding is not a taxation recovery proceeding. It is certainly a means by which the Commissioner can be compelled in the event of a favourable order being obtained to carry into effect by amendment the Court’s order with a consequential reduction or elimination of the debt otherwise due to the Commonwealth if the assessment is undisturbed.

14    With very great respect, none of these subtleties seem to have been pressed upon the Court in Precision Pools. In other words, were the Commissioner to have accepted the offers, the assessments concerned would have remained in place. Inferentially, what the Commissioner was being invited to do was to compromise a right of recovery on those assessments. But these proceedings are not taxation recovery proceedings.

15    However that may be, I am bound sitting in the original jurisdiction of this Court, by JMC and Clark (No.2).

16    The Commissioner made submissions directed to the end of a conclusion that his conduct in rejecting the December 2023 offer was reasonable. Those submissions were well grounded in the position, as it then prevailed, in terms of information then known to the Commissioner.

17    In the principal judgment, I make reference to a statutory declaration made by Mr Andrew Coronis as to the foundation for the claimed service charges. I also make reference to agreements made in 2005 and 2006 by the applicants with asset-owning companies. Yet further, I make reference to what ultimately proved to be a quite idiosyncratic approach to the tendering of advice to Mr Theo Coronis and Mr Andrew Coronis by their then-accountant Mr Bryant, as to the amount of the service fees which was reasonable in a given year.

18    The Commissioner had Mr Andrew Coronis’ statutory declaration, on the face of which he attested to the 2005 and 2006 agreements still being operative, a position from which he departed for reasons I did not consider entailed any dishonesty in his oral evidence in the taxation appeals. But one must assess this in prospect for present purposes. I can well see how, although the Commissioner had the benefit of considered views of a well-qualified chartered accountant, Mr Graham, that the fees concerned were reasonable, and thus pause for thought about whether the case was one to which Fletcher v Commissioner of Taxation (Cth) (1991) 173 CLR 1, might be regarded as applicable, there was nonetheless an interrogative note about whether the liability concerned had been incurred, and if so, on what basis.

19    In the principal judgment I make reference to the importance of the Commissioner approaching assessment with an understanding of the realities of commerce. To expect of the Commissioner a standard of perfection is hardly appropriate. All one can expect is administration in good faith with at least an endeavour to bring that understanding of the realities of commerce to bear. But even so, there remained in this case an interrogative note about whether the liability was incurred and, if so, on what basis. So I can well see how the Commissioner’s rejection of the offer was reasonable. Although given that Clark (No 2) had by then been decided, as had JMC, a rejection on that basis was not without its risks.

20    In other words, as the authorities stood in December 2023 at intermediate appellate level, reasonableness per se was unlikely to be sufficient for an exercise, judicially, of the discretion found in r 1.35 to depart from the prima facie position specified in r 25.14(3).

21    It only comes to this: In the circumstances of this case, and although it was, in my view, reasonable to have rejected the offer, that is not sufficient for me to depart from the position found in r 25.14(3).

22    What follows is that this is a case where a more favourable outcome has been obtained by judgment by the applicants. It is more favourable than the offer which was made. There is no occasion, in my view, in departing from the prima facie position, given that reasonableness, per se, has not been regarded by the Full Court as sufficient.

23    The applicants have sought for costs to be awarded in a lump sum, instead of taxed costs, pursuant to r 40.02 of the rules. An award on that basis is desirable in this instance as a way of not burdening either of the parties with the expense of a taxation. The orders, therefore, are:

(1)    Pursuant to r 25.14(3) and r 40.02 of the Federal Court Rules, the respondent pay the applicant’s costs of and incidental to the proceedings QUD372/2023 and QUD373/2023 in a lump sum, to be fixed by a registrar:

(a)    up to 11 am, on 7 December 2023, on a party and party basis; and

thereafter on an indemnity basis.

If not agreed.

24    The position with respect to costs in taxation appeals, where it has now become not uncommon to see offers being made and not accepted may be one which requires attention in relation to revenue law practise. I would doubt very much if, prior to 1992, there is to be found in any report of the disposal of a taxation appeal either by the High Court in its original jurisdiction, Supreme Courts in the days when the original appellate jurisdiction was consigned to those courts, or, thereafter, in this Court, orders for costs being made routinely in taxation appeals on an indemnity basis. For the present, I consider myself bound by Clark (No 2) and JMC and to what was said in those cases and to apply those cases in a principled way to the facts as revealed by affidavit of Mr Bourke and the offers there found, as well as in the papers transmitted to the Court by the Commissioner pursuant to the Rules after the filing of the taxation appeals.

Associate:    

Dated:    28 March 2025