Federal Court of Australia

Shell Energy Holdings Australia Limited v Commissioner of Taxation (Costs) [2026] FCA 882

ORDERS

THE COURT ORDERS THAT:

1.    The Respondent pay the Applicant’s costs of the proceedings:

(a)    before 11.00 am on 9 February 2026, on a party and party basis; and

(b)    after 11.00 am on 9 February 2026, on an indemnity basis.

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

REASONS FOR JUDGMENT

JACKMAN J:

1    In Shell Energy Holdings Australia Limited v Commissioner of Taxation [2026] FCA 577, I found in favour of SEHAL and expressed the preliminary view that the Commissioner should pay SEHAL’s costs of the proceedings (at [107]). I set a timetable for affidavits and written submissions on the question of costs, noting that SEHAL may wish to seek a special order for costs. In that judgment, I found that the appropriate premium was 18% over the closing market price on 20 January 1997, yielding a market value for each share that day of $11.12 (at [105]). Capitalised terms used in these reasons have the meaning given to them in that judgment.

2    SEHAL’s primary contention is that, because the Commissioner rejected an offer to compromise made by SEHAL pursuant to r 25.01 of the Federal Court Rules 2011 (Cth) (the Rules), the Court should order that the Commissioner pay SEHAL’s costs:

(a)    before 11.00 am on 9 February 2026, on a party and party basis; and

(b)    after 11.00 am on 9 February 2026, on an indemnity basis.

3    Rule 25.14(3) of the Rules provides that, if an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs:

(a)    before 11.00 am on the second business day after the offer was served – on a party and party basis; and

(b)    after the time mentioned in para (a) – on an indemnity basis.

4    SEHAL submits, and I accept, that the rule is enlivened in the present case because:

(a)    on 5 February 2026, SEHAL made an offer by serving a “Notice of Offer to Compromise”, in accordance with Form 45, on the Commissioner;

(b)    the offer was not accepted by the Commissioner; and

(c)    SEHAL has obtained a judgment that is more favourable than the terms of the offer, because I found that the market value of each share in the WPL Shareholding was $11.12, not $10.82 (being the figure in the offer).

5    Accordingly, as SEHAL submits, SEHAL has a presumptive entitlement to indemnity costs from the second business day after the offer was served (being 9 February 2026): Wu v Chu [2025] FCAFC 155; (2025) 312 FCR 89 at [9] and [28] (O’Callaghan, O’Bryan and Vandongen JJ).

6    The Commissioner submits that that presumptive entitlement should not apply in the present case for two reasons. The first is a submission that the offer required what was, in substance, close to capitulation by the Commissioner and was not a substantial compromise by SEHAL, citing JMC Pty Ltd v Commissioner of Taxation (Costs) [2023] FCAFC 95 at [13] (Bromwich, Thawley and Hespe JJ). I reject that submission. As the Commissioner’s submissions themselves indicate, the offer by SEHAL involved SEHAL having to pay additional income tax of just over $17 million. In my view, that was a substantial compromise by SEHAL. It represents more than 15% of the amount of tax at stake in the proceedings.

7    The second reason advanced by the Commissioner is a submission that the dispute raised an important question about the construction of s 160ZZSC of the Income Tax Assessment Act 1936 (Cth), and that proceedings which raise serious issues about important points of law tend in favour of departing from the presumptive position under r 25.14(3), citing Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118 at [19] and [27] (Allsop CJ, Greenwood, Besanko, Nicholas and Katzmann JJ). However, the dispute concerned the application of a transitional provision in the old CGT law which, in the absence of evidence to the contrary, appears to me to have little ongoing significance to the Commissioner or to the tax community. The Commissioner did not rely on any evidence to establish the supposed importance of the issues in the dispute concerning the construction of s 160ZZSC and the approach to be taken when valuing shares for the purposes of applying that provision.

8    Accordingly, in my view, the costs order sought by SEHAL is appropriate.

Associate:

Dated:    7 July 2026