FEDERAL COURT OF AUSTRALIA

Larmar v Commissioner of Taxation (No 2) [2026] FCA 1345

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant pay 85% of the Respondent’s costs of and incidental to this proceeding and QUD 167/2023, consolidated and fixed on a lump sum basis to be determined by a Registrar in accordance with GPN-Costs.

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

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant pay 85% of the Respondent’s costs of and incidental to this proceeding and QUD 484/2022, consolidated and fixed on a lump sum basis to be determined by a Registrar in accordance with GPN-Costs.

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

REASONS FOR JUDGMENT

WHEATLEY J:

INTRODUCTORY OVERVIEW

1    The parties in these proceedings now seek orders relating to the costs of two taxation appeals that were heard together. The first matter was instituted by Mr Larmar in QUD 484/2022, which was commenced on 21 December 2022 (Personal proceeding). The second was instituted by E H Larmar Services Pty Ltd as trustee of the Larmar Family Trust No 2 (Services) in QUD 167/2023, which was commenced on 27 April 2023 (Trust proceeding). Mr Larmar was the sole director and shareholder of E H Larmar Services Pty Ltd. The proceedings were related.

2    On 1 May 2024 Orders were made (May 2024 Orders) in each of the Personal proceeding and the Trust proceeding (together, the Tax Appeals) for the matters to be case managed and heard together. Evidence in either of the Tax Appeals was also ordered to be evidence in each of the other Tax Appeals.

3    The Commissioner had issued alternative amended assessments against Mr Larmar and Services, in relation to certain income received from various property syndicates. Both amended assessments related to the same income. Only one could properly represent the “true state of the affairs”. Judgment was delivered in Larmar v Commissioner of Taxation [2026] FCA 826, whereby it was held that Mr Larmar had failed to discharge his onus to establish that the primary amended assessments issued to him were excessive and hence represented the “true state of the affairs”. Consequently, the alternative amended assessments issued to Services were necessarily excessive. The Personal proceeding was dismissed, and the Trust proceeding was allowed.

4    Having given that broad overview, these reasons assume a familiarity with the Judgment.

5    The Judgment also provided the parties with an opportunity to make submissions and provide any necessary affidavit evidence, in relation to costs.

6    The Applicants seek the following, by way of separate submissions filed in each of the Personal proceeding and the Trust proceeding (as agreed or assessed):

(a)    in the Personal proceeding, that:

(i)    except for the matters in (ii) and (iii), Mr Larmar pay the Commissioner’s costs on a party and party basis;

(ii)    there be no order as to costs for the preparation of an affidavit of Ms McGrath dated 22 November 2024 (the November Affidavit); and

(iii)    the Commissioner pay Mr Larmar’s costs of the case management hearing on 12 November 2024 and his costs thrown away by the adjournment of the December trial (the November CMH and Adjournment).

(b)    in the Trust proceeding, that pursuant to r 25.14(3) of the Federal Court Rules 2011 (Cth) (the Rules), the Commissioner pay Services’ costs, including reserved costs:

(i)    up to 11am on 28 May 2025, on a party and party basis; and

(ii)    thereafter on an indemnity basis.

7    In the alternative, the Applicants submit that there should be no orders as to costs in the Tax Appeals, given the difficulty of allocating costs between the two proceedings.

8    The Commissioner seeks orders (in consolidated submissions):

(a)    in the Personal proceeding that:

(i)    a special order as to costs be made, that Mr Larmar pay the Commissioner’s costs on a standard basis up to 30 May 2025 and on an indemnity basis thereafter; or alternatively,

(ii)    Mr Larmar pay the Commissioner’s costs on a standard basis.

(b)    in the Trust proceeding that:

(i)    a special order as to costs be made, that Mr Larmar pay the Commissioner’s costs on a standard basis up to 30 May 2025 and on an indemnity basis thereafter; or alternatively,

(ii)    there should be no order as to costs (however, this is on the basis that the proposed special order as to costs in the Personal proceeding is also made).

9    For the following reasons, neither party should be granted their costs on an indemnity basis. The Commissioner was, for the most part, successful in the Tax Appeals. As such, generally he would be compensated by an order for his costs. However, he was not completely successful. Therefore, taking a broad-brush approach, the Commissioner will be awarded 85% of his costs of the Tax Appeals, to be fixed on a lump sum basis by a Registrar in accordance with GPN-Costs.

RELEVANT PRINCIPLES - COSTS

10    Section 43 of the Federal Court of Australia Act 1976 (Cth) (FCA) provides the Court with a “broad and ample” discretionary power to award costs: DSE (Holdings) Pty Limited v InterTAN Inc (2004) 51 ACSR 555; [2004] FCA 1251 at [14] (Allsop J); Tenser v Quigley [2016] FCAFC 178 at [26] (Nicholas, Katzmann and Markovic JJ). The power “must be exercised judicially, not arbitrarily or capriciously or on grounds unconnected to the litigation” but having regard to the relevant principles and justice of the particular circumstances of the case involved: Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v Mukiza [2022] FCAFC 105 at [4] (Markovic, Thawley and Cheeseman JJ); Kazar v Karagarian (2011) 197 FCR 113; [2011] FCAFC 136 at [4] (Greenwood and Rares JJ). The exercise of the discretion is guided by settled and established principles: Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25 at [24] (Kiefel CJ, Bell, Gageler, Keane and Nettle JJ). The Court must take “into account any failure by a party to comply with the overarching purpose of the civil procedure provisions”, being to “facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible”: s 37N(4) and s 37M(1) of the FCA; LFDB v SM (No 2) [2017] FCAFC 207 at [7] (Besanko, Jagot and Lee JJ); also see Australian Competition and Consumer Commission (ACCC) v Colgate-Palmolive Pty Ltd (No 5) (2021) 151 ACSR 26; [2021] FCA 246 at [6]-[9] (Wigney J).

11    By far the most important factor as guiding the exercise of the costs discretion, is the result of the litigation, referred to as the ‘event’. The ‘event’ is usually referred to as the overall outcome of the case: Queensland North Australia Pty Ltd v Takeovers Panel (No 2) (2015) 236 FCR 370; [2015] FCAFC 128 at [16] (Dowsett, Middleton and Gilmour JJ). Usually, but not by way of a rigid rule, costs follow the event, such that the discretion to award costs is exercised in favour of a successful party: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [66]-[67] (McHugh J) and [134] (Kirby J); Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192; [2015] HCA 53 at [6] (French CJ, Kiefel, Nettle and Gordon JJ); Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd (No 2) [2017] FCAFC 158 at [9]-[11] (Greenwood, Rares, Moshinsky JJ); Malone v B&M Aboriginal Corporation (In Administration) (No 2) (2025) 309 FCR 35; [2025] FCAFC 51 at [6] (O’Bryan, Halley and Horan JJ). Sometimes, the ‘event’ may be contestable, where separate issues have fallen in different ways: Plaintiff M76/2013 v Minister for Immigration, Multicultural Affairs and Citizenship [2013] HCA 53; (2013) 251 CLR 322 at [241] (Kiefel and Keane JJ).

12    A successful litigant will usually receive their costs, and depending on the case, in proportion to their degree of success, which can result in a successful party being deprived of costs on issues failed upon or ordered to pay some of the costs of an unsuccessful party, on an issues approach: Hughes v Western Australia Cricket Association (Inc) [1986] ATPR 40-748; [1986] FCA 465 at 48,136 (Toohey J); Hockey v Fairfax Media Publications Pty Ltd (No. 2) (2015) 237 FCR 127; [2015] FCA 750 at [37] (White J); Tenser at [27]. However, it has been said that there are “good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like”: Firebird at [6].

13    In Merchant v Commissioner of Taxation (Costs) [2025] FCAFC 81 (Logan, McElwaine and Hespe JJ) at [10], with reference to Sandvik and Caffitaly System SPA v One Collective Group Pty Ltd (No 2) [2021] FCAFC 164 at [5] (Yates, Moshinsky and Burley JJ), the Court identified three distinct categories of situations where a successful party might be deprived of costs or even ordered to pay the costs of the other, being:

(1)    where an applicant has been only partially successful in that it has not obtained all of the relief sought;

(2)    where a party succeeded in obtaining the relief sought, but has not succeeded on all bases (factual or legal) upon which it sought such relief; and

(3)    considerations of the successful party’s conduct of the case.

14    However, the mere fact that a court does not accept all of a successful party’s arguments, does not necessarily make it appropriate to apportion costs on an issues basis: Impiombato v BHP Group Limited (No 2) [2025] FCAFC 28 at [13] (Beach and O’Bryan JJ); Firebird at [6]. The determination of costs on an issue-by-issue basis is ordinarily not desirable: Commissioner of Taxation v Bosanac (No 2) [2022] FCAFC 5 at [16] (Kenny, Davies and Thawley JJ). There is no rule or presumption that an order for costs is made after assessing the parties’ success, having regard to particular issues in the proceedings: Caporaso Pty Ltd v Mercato Centrale Australia Pty Ltd (Costs) [2025] FCAFC 29 at [15] (Katzmann, Wheelahan and Hespe JJ).

15    Costs are compensatory in nature, not punitive: Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 at 543 (Mason CJ), 563 (Toohey J) and 567 (McHugh J); Seven Network Ltd v News Ltd (2009) 182 FCR 160; [2009] FCAFC 166 at [1099] (Dowsett and Lander JJ); Hockey at [37]; Tenser at [27]. Costs are usually awarded by way of partial indemnity for professional costs actually incurred, they are not intended to be a full and comprehensive amount of compensation for any loss suffered by the litigation: Cachia v Hanes (1994) 179 CLR 403; [1994] HCA 14 at 410-411 (Mason CJ, Brennan, Deane, Dawson and McHugh JJ); Bell Lawyers Pty Ltd v Pentelow (2019) 269 CLR 333; [2019] HCA 29 at [22] (Kiefel CJ, Bell, Keane and Gordon JJ); Birketu Pty Ltd v Atanaskovic (2025) 421 ALR 256; [2025] HCA 2 at [14] and [17] (Gageler CJ, Gordon, Edelman, Gleeson and Beech-Jones JJ). Costs are not awarded to punish the unsuccessful party: Oshlack at [67].

16    The ordinary position, as is also reflected in r 40.01 of the Rules, is that costs are on a party and party basis. The discretion to depart from that ordinary position requires some special or unusual feature or that the justice of the case requires such a departure: Seven Network at [1102]; (ACCC) v Colgate at [8]; Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; [1993] FCA 801 at 230-231 (Shephard J). The categories where the Court will depart from the ordinary position are not closed: Seven Network at [1102] (Dowsett and Lander JJ). Various categories were identified in Colgate-Palmolive Co at 233-234. A well-established circumstance justifying an award of indemnity costs is the unreasonable or imprudent refusal of an offer to compromise: Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [6] (Nicholas, Yates and Beach JJ). As Burley and Jackman JJ observed in The Game Meats Company of Australia Pty Ltd v Farm Transparency International Limited (Costs) [2025] FCAFC 134 at [12]:

… The question whether rejection of an offer was unreasonable must be assessed in light of the circumstances existing at the time the offer was rejected: Anchorage at [6]-[7]. A non-exhaustive list of factors which may be relevant to the assessment of whether or not the rejection was unreasonable was set out in Anchorage at [7], namely:

(a)    the stage of the proceeding at which the offer was received;

(b)    the time allowed to the offeree to consider the offer;

(c)    the extent of the compromise offered;

(d)    the offeree’s prospects of success, assessed as at the date of the offer;

(e)    the clarity with which the terms of the offer were expressed; and

(f)    whether the offer foreshadowed an application for an indemnity costs order in the event of the offeree rejecting it.

17    The Applicants, in the Trust proceeding, also rely on r 25.14(3) of the Rules, which says as follows:

25.14     Costs where offer not accepted

(1)    If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

(a)    the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

(b)    the respondent is entitled to an order that the applicant pay the respondent's costs after that time on an indemnity basis.

(2)    If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant's proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent'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 paragraph (a)—on an indemnity basis.

(3)    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 paragraph (a)—on an indemnity basis.

Note 1:    Costs on an indemnity basis is defined in the Dictionary.

Note 2:    The Court may make an order inconsistent with these rules— see rule 1.35.

18    The object of r 25.14 is to promote the early settlement of disputes: JMC Pty Ltd v Commissioner of Taxation (Costs) [2023] FCAFC 95 at [23] (Bromwich, Thawley and Hespe JJ). It is designed to encourage genuine offers of compromise: Commissioner of Taxation v Crown Insurance Services Ltd (No 2) [2012] FCAFC 182 at [34] (Lander, Jessup and Foster JJ). Rule 25.14(3) expressly turns on whether the judgment “is more favourable than the terms of the offer”. In those circumstances an applicant “is entitled” to indemnity costs, in accordance with the terms of r 25.14(3): JMC at [6]. It provides a prima facie position as to the costs consequences of a responding party failing to accept an offer to settle made by a moving party: Commissioner of Taxation v Hicks (No 2) [2026] FCAFC 14 at [16] (Derrington, Feutrill and Hespe JJ). That entitlement is a rebuttable presumption: Lodestar Ansalt v Campari America LLC (No 2) [2016] FCAFC 118 at [23] (Allsop CJ, Greenwood, Besanko, Nicholas and Katzmann JJ).

19    Under r 25.14(3) it is not necessary for the Court to conclude that a respondent’s refusal to accept the offer was unreasonable: Lodestar at [23]. However, the reasonableness of the rejection will be relevant. Even a reasonable rejection is not necessarily sufficient to disengage the entitlement under r 25.14(3): JMC at [9]-[11]. The reasonableness of a refusal to accept an offer to settle is to be determined as at the date of the rejection, without regard to the ultimate conclusion of the proceedings: Hicks (No 2) at [23]. That includes without the benefit of hindsight, following full argument: Caporaso at [21]. The Court retains power to make such costs orders as it considers appropriate, which can be inconsistent with the terms of r 25.14(3): r 1.35 of the Rules, JMC at [8]-[11]; Hicks (No 2) at [13]; Caporaso at [21]; Australian Skills Quality Authority v Western Institute of Technology Pty Ltd [2017] FCAFC 183 at [23] (Tracey, Griffiths and Charlesworth JJ). However, if the terms of r 25.14(3) are satisfied it will then be for the respondent to bear the onus of establishing that an order for costs inconsistent with r 25.14(3) should be made, on the basis of proper reasons which generally will arise in exceptional circumstances: Lodestar at [27].

20    Rule 25.14 is within Part 25 of the Rules, “Offers to Settle”. Rule 25.03 provides for the content of the offer to compromise, which includes whether the offer is inclusive of costs or whether costs are additional. Rule 25.05 provides for the timing of the offer, which includes that it may be made at any time before judgment, more than one offer can be made and although it may be limited in time, it must not be less than 14 days after the offer was made.

21    However, if an offer to settle is made, but not in accordance with Part 25 of the Rules, the offer may be regarded as a Calderbank offer, in accordance with the principles from Calderbank v Calderbank [1975] 3 All ER 333. Such an offer does not give rise to a presumptive entitlement to indemnity costs, if the offer is not accepted and the party who made the offer obtains a judgment that is more favourable than the terms of the offer. It will be necessary for the party seeking an order for indemnity costs to demonstrate that the other party’s refusal of the Calderbank offer was unreasonable, having regard to the particular circumstances at the time of the offer: CGU Insurance Limited v Corrections Corporations of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75] (Moore, Finn and Jessup JJ); Wu v Chu (2025) 312 FCR 89; [2025] FCAFC 155 at [10] (O’Callaghan, O’Bryan and Vandongen JJ).

22    Ultimately, costs are within the discretion of the Court and fairness dictates, guided by these principles (above), how that discretion is to be exercised: Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [5] (Finkelstein and Gordon JJ) and at [14] (Rares J); Clarence City Council v Commonwealth of Australia (Costs) [2024] FCAFC 47 at [3] (Markovic, Stewart and Anderson JJ).

COSTS OF THE TAX APPEALS

23    To consider the appropriate orders as to costs in all of the circumstances, it is necessary to outline some of the relevant context of the proceedings, the parties’ submissions and the offers relied on by the parties.

Costs in the Personal proceeding

24    Mr Larmar submits that costs should follow the event in the usual way, except for two matters, being the November Affidavit and the November CMH and Adjournment.

Costs of the November Affidavit and the November CMH and Adjournment

25    Any issue regarding the November Affidavit can be dealt with shortly. An order of the Court on 12 November 2024 dealt with the costs of the November Affidavit. It was ordered that there be no order as to costs for the preparation, filing and serving of the affidavit of Ms McGrath sworn on 22 November 2024. As such, this issue has already been decided. Furthermore, orders were made on 30 January 2025, effectively meaning any issue to which the November Affidavit was relevant was at an end.

26    Mr Larmar seeks his costs of the November CMH and Adjournment, particularly seeking his costs thrown away by the adjournment. This is with reference to Edelman J in Cassimatis v Australian Securities and Investments Commission (2026) 334 ALR 350; [2016] FCA 131 at [56]-[57]. Costs thrown away is the common description for costs that have been reasonably incurred that relate to work done and wasted. A causal enquiry is required, to ascertain whether the costs that were incurred would not have been incurred but for the relevant event. This principle can be readily accepted, however it is whether it is applicable to the circumstances of the November CMH and Adjournment which is in issue.

27    The costs of the November CMH and Adjournment were reserved to the trial by orders dated 5 February 2025. The Applicants refer and rely on an Affidavit of their solicitor dated 11 November 2024, in relation to these costs. The Applicants submit that the trial was adjourned and the December hearing dates vacated essentially because of the problematic (and voluminous) filing of the Commissioner’s affidavit material which was to be relied on at trial. The Applicants submit this was in circumstances where prior notice of the (vast) volume of material being filed was not given, nor was it raised that the time to reply may be insufficient because although the time frame was previously agreed, it did not contemplate the vast volume of material that the Commissioner was filing. Further, due to the volume of material, the Applicants also submit that a reasonable inference was that the material would need to be printed, so it could be considered and any reply prepared. These factors are said, by the Applicants, to have caused the adjournment and wasted costs.

28    The Commissioner disagrees and submits that the vacation of the hearing was not caused by him. The Commissioner submits it was to allow the Applicants to file reply material and the parties consented to an order allowing that to happen, which included vacating the trial.

29    In the May 2024 Orders, trial orders were made timetabling material and setting the Tax Appeals for hearing to commence on 5 December 2024, with 6 December 2024 and the week of 9 December 2024 being reserved for the continuation of that hearing.

30    By orders dated 10 July 2024, 22 August 2024 and 8 October 2024, the timetabling orders were amended, by consent. That included by way of the Orders dated 8 October 2024 for the Applicants’ evidence to be filed by 20 September 2024, which had previously been required by 13 September 2024. The Applicants did file some of their evidence on 13 September 2024, however Mr Larmar’s trial affidavit was not filed until 23 September 2024.

31    At the case management hearing on 12 November 2024, the Court was considering the application for the adjournment of the trial. The Applicants contended that the adjournment was caused by the volume and lateness of the Commissioner’s material, which the Commissioner disputed.

32    The Commissioner’s position was that the material was not actually late and the volume was caused by the lack of material filed by the Applicants (in-chief). It was raised at the case management hearing that the Commissioner should have given some notice to the Applicants of the sheer volume of material he was proposing to file, as the two weeks for reply was likely to be inadequate.

33    The Judge at the case management hearing expressly recorded (in the transcript) “(t)he reason why I am adjourning the trial is I have noted the application, I have noted that the Commissioner does not oppose that, and that I have formed the settled view that it would not be in the interests of justice to endeavour to retain those – the existing trial dates having regard to the position disclosed in Mr Weekes’ affidavit…”. His Honour also recorded other observations but noted that absent the November Affidavit, such matters should not yet be determined. That included costs of the November CMH and Adjournment.

34    This Affidavit of Mr Weekes (a solicitor of the Applicants) stated that the affidavit upon which the Commissioner sought to rely, was copied to him by an email from the Queensland Registry on 5 November 2024 at 4.54pm. Mr Weekes further stated that the affidavit received was not hyperlinked and there was no ability to open the attachments in that sealed copy of the affidavit. The November Affidavit explains in detail the process by which the affidavit that the Commissioner sought to rely on at trial, was lodged, filed, provided and served on the Applicants. It is apparent that the Applicants had an electronic unsealed copy of the Affidavit and annexures on 25 October 2024 (being the day it was due). However, the Applicants contend it had to be printed and this took time and errors resulted. It is unclear what was the precise cause of the errors.

35    The November Affidavit does not provide any evidence of the Commissioner previously alerting the Applicants to the amount of evidence he was going to file. Much of the evidence sought to be filed in this affidavit to be relied on at the trial was referred to in the objection decision and were documents that the Applicants would have had possession of (at least at some stage), like bank statements.

36    The period for the Applicants to provide evidence was approximately two weeks. Two weeks is not an uncommon period of time for reply evidence. Of course, it can certainly be accepted that in a case where it is anticipated that significant or substantial reply evidence might be required, a longer period may be appropriate.

37    The May 2024 Orders provided three weeks for the reply evidence (from 27 September 2024 to 18 October 2024). The varied timetable on 22 August 2024 provided 10 days for the reply evidence (from 18 October 2024 to 28 October 2024). The 8 October 2024 Orders which in part regularised the provision of the Applicants’ material, allowed 13 days for the reply evidence (from 25 October 2024 to 7 November 2024). All of these orders were made by consent. Of course, these were made in an absence of knowledge by the Applicants of the volume of material to be filed by the Commissioner.

38    The November case management hearing considered the timing of the Applicants’ reply evidence. The Orders from that case management hearing of 12 November 2024 provided until 30 January 2025 for the Applicants’ reply evidence. That was not what was originally sought by the Applicants. The Applicants approached the case management hearing seeking until 20 December 2024 for their reply evidence. Either date was beyond the December hearing dates. At the further case management hearing on 5 February 2025, the Applicants sought a further extension to file the reply evidence to 12 February 2025.

39    Part of the matters canvassed at the November case management hearing was the vacation of the trial dates. Although the vacation of those dates was not opposed, it is unlikely that such an issue would have been determined on the papers. Therefore, with the different dates ventilated and the adjournment of the trial, the case management hearing progressed the Tax Appeals such that the costs of that case management hearing were not wasted. As such, those costs of the case management hearing of 12 November 2024 are properly costs in the proceedings.

40    It is unknown what costs were actually thrown away by the adjournment on 12 November 2024, in circumstances where the adjournment was not opposed and the Applicants would not have been ready for the trial which was to commence on 5 December 2024, given they were seeking until 20 December 2024 for their reply evidence. However, that is not the issue for determination. It matters not the quantum of any costs thrown away but whether there could be any costs thrown away which were caused by the Commissioner’s provision of his material (being the relevant event).

41    The Applicants contend that they needed to print the Commissioner’s Affidavit material and this caused the trial dates to be vacated and costs to be thrown away. I do not accept the submission that any need or preference by the Applicants to print filed documents caused the vacation of the trial dates. Although there may have been some difficulties printing the affidavit, it is unclear why such difficulties should rest on one’s opponent. This Court operates a fully electronic court filing and document system and has done so since July 2014 (see, GPN-Tech at [1.1]). Of course, parties are at liberty to print filed documents. However, that is quite different to then seeking to support a submission that the other party caused a vacation of the trial for providing material electronically (as is required) because they would prefer it printed.

42    The Applicants also contend that the Commissioner’s Affidavit material was late and this caused the trial dates to be vacated and costs to be thrown away. I do not accept the submission that any lateness of the Commissioner to file his material caused the vacation of the trial dates. The Applicants’ materials were not all filed as required by the Court’s orders on 20 September 2024 and it was Mr Larmar’s affidavit which was late. A sealed version of the Commissioner’s material was also not served on 25 October 2024. In addition to being late, the Applicants also submitted that the Commissioner should have alerted them to the volume of the material which he was going to file. This submission seems to be based on a proposition that had the Applicants known, they would have sought additional time to file evidence in reply. However, it is unclear what additional time the Applicants would have sought (from 12 November 2024) and which could have been accommodated, with the trial due to commence on 5 December 2024. Furthermore, there is no obligation on a party to advise their opponent, in advance, of the volume of material it is going to file in support of its case. It is also unclear how the absence of any such notification caused the vacation of the trial, in circumstances where the Applicants ultimately required until 12 February 2025 to file evidence in reply. From 12 November 2024 (when the reply material was originally due) to when the reply material was ultimately filed, is a period of three months. Therefore, it is clear that the Applicants would not have been able to file their evidence in reply in time for the December hearing, in any event.

43    What is clear is that there was some fault on both sides. The adjournment of the trial was not opposed. The hearing was still three weeks away and the case management hearing usefully advanced the proceedings. The costs being incurred in the proceedings at that stage would not have been wasted but would be useful and necessary for the preparation of the Tax Appeals. Further, given there was fault on both sides and the evidence in reply ultimately took three months, such costs were not caused by a particular party. As such, there will be no orders for any costs thrown away by the trial being adjourned. The costs of the case management hearing of 12 November 2024 and other costs associated with that appearance and the preparation of the evidence in reply, are properly costs in the proceedings.

Offers in the Personal proceeding

44    Mr Larmar submits that he does not seek a special costs order in the Personal proceeding. Mr Larmar was correct not to do so, given he was unsuccessful in the Personal proceeding. He also submits that a special costs order should not be made in the Commissioner’s favour. Mr Larmar submits it was not unreasonable to reject the (counter) offer of the Commissioner dated Friday 23 May 2025 at 5.58pm, which expired at 4pm on 27 May 2025. Further, Mr Larmar submits it was not unreasonable to reject the Commissioner’s further offer of 29 May 2025 at 3.50pm which expired at 3pm on 30 May 2025.

45    The Commissioner submits he has been wholly successful and because of the offer he should be awarded costs on an indemnity basis. The Commissioner primarily relies on his offer of 29 May 2025, but not on the basis of r 25.14 of the Rules. The Commissioner was correct not to rely on the Rules, his offer was not in accordance with the required form and not open for 14 days: r 25.01 and r 25.05 of the Rules. This offer was only open for approximately 24 hours ending at 3pm on Friday 30 May 2025 when the trial was to commence on Monday 2 June 2025.

46    The Commissioner’s 29 May offer was, in essence that Mr Larmar be liable for $13,235,561.42 (which would be attributable to primary tax, administrative penalties and SIC), less an amount earlier paid by Mr Larmar of $902,629.31. This was plus a total GIC of $10,073,538.68, giving a total payment of $22,406,407.79. The Commissioner also stated a deed and security would be required and the Commissioner would agree to amend Services’ assessment to its original lodged position. The offer was made on the basis that each party bear their own costs. The primary tax liability of Mr Larmar was said to be $13,681,172.48 and the total tax liability including all GIC was $52,515,581.00. The offer was said to be in accordance with the principles in Calderbank. The Commissioner submits that as a result of the Judgment the primary tax payable by Mr Larmar is $13,681,172.48, together with penalties in the amount of $22,731,003.87 and SIC of $569,956.27.

47    As such, the Commissioner submits that the Judgment he obtained was more favourable than the terms of his offer and Mr Larmar unreasonably failed to accept the offer, such that indemnity costs are appropriate.

Costs in the Trust proceeding

48    Mr Larmar seeks a special costs order in the Trust proceeding. The alternative assessments were ‘necessarily excessive’: Judgment at [10].

Offers in the Trust proceeding

49    On 2 May 2025, Services and Mr Larmar made a ‘global offer’ in accordance with the principles in Calderbank.

50    On 15 May 2025, Services made an offer to settle, said to be under r 25.01 of the Rules, however, this was withdrawn on 26 May 2025 (r 25.07(b)) and a further offer was made again said to be under r 25.01 of the Rules, on more favourable terms. Then on 6 June 2025 (after 4 days of hearing) Services and Mr Larmar made an offer under the Calderbank principles to settle the whole of the proceedings. The offer lapsed, despite extensions being sought and granted.

51    Services relies on the offer made under an email at 1.52pm dated 26 May 2025 under r 25.01 and r 25.14(3) to seek indemnity costs. An offer was made in each of the Tax Appeals that stated (as it must be) that both offers could not be accepted. The offers were described as separate offers to compromise for each of the proceedings and that should the Commissioner accept any one of the offers, the other offer then had no work to do.

52    The 26 May 2025 offer in the Trust proceeding was that Services would be liable for $9,180,454.95 plus GIC of $4,500,000.00 (which would be reduced by certain payments already made). The amount of the offer stated that it included any penalties and additional interest charges and that each party would bear their own costs of the proceedings. The offer was said to be open for 14 days, which would have been until 9 June 2025. Payment was to be made by way of $8,000,000.00 within 2 days of the execution of a deed and the balance on or before 26 November 2025.

53    As the two separate offers were related it is necessary to also set out the terms of the offer in the Personal proceeding. The 26 May 2025 offer in the Personal proceeding was that Mr Larmar would be liable for $13,235,561.42 for the amended assessments, plus a total amount of GIC of $4,500,000.00 (which would be reduced by certain payments already made). The amount of the offer stated that it included any penalties and additional interest charges and that each party would bear their own costs of the proceedings. The offer was said to be open for 14 days, which would have been until 9 June 2025. Payment was to be made by way of $8,000,000.00 within 2 days of the execution of a deed and the balance on or before 26 November 2025.

54    The Applicants made another offer on 6 June 2025, which was said to be on the same terms as the Commissioner’s offer of 29 May 2025, which had lapsed. This offer was made in accordance with the principles derived from Calderbank. The 6 June 2025 offer did not say it superseded or withdrew the 26 May 2025 offer, however, it was on more favourable terms to the Commissioner. The total amount to be paid was $22,406,470.79.

55    However, the 6 June 2025 offer was not made in accordance with the Rules.

56    Rule 25.07 relevantly provides:

25.07    Withdrawal of offer

An offer may be withdrawn within 14 days after it is made only if:

(a)    the Court, on an application by the offeror, gives leave; or

(b)    the offer is superseded by an offer in more favourable terms to the offeree.

57    Neither party referred to this rule in their submissions, in the context of the offers made. There is to be no communication of an offer to the Court, except in the circumstances of r 25.06(2). Relevantly, that includes where an application is made under r 25.07: r 25.06(2)(c) of the Rules. The Rules allow a party to withdraw an offer, without seeking leave of the Court, in circumstances where a more favourable offer is made: r 25.07(b) of the Rules. The application of this rule however, would only apply to offers to settle made in accordance with Part 25 of the Rules.

58    Rule 25.05(2) of the Rules expressly allows for a party to be able to make more than one offer. Katzmann J observed in Visscher v Teekay Shipping (Aust) Pty Ltd (No 5) [2013] FCA 28 at [24] that a second offer does not extinguish the first. If such an offer is valid under the Rules, that party is entitled to rely on it. In the circumstances of that case, both offers were made under the “Rules” although the first was made under the former rules (at [8]). The first offer was what is commonly referred to as a “walk-away” offer, whereas the second offer included a payment (at [7]). Katzmann J held it was unreasonable to refuse the second offer and ordered indemnity costs from then (at [32]-[35]). The second offer was more favourable to the offeree, however her Honour considered each offer, each being made under the Rules. The two offers in the circumstances of that case did not overlap.

59    The Applicants also rely on Federal Commissioner of Taxation v Clark (No 2) (2011) 197 FCR 251; [2011] FCAFC 140 at [32] (Dowsett, Edmonds and Gordon JJ), in the context of the 26 May 2025 offer and r 25.14(3). Those obiter remarks (see, Hicks (No 2) at [23]) in Clark (No 2) were in the context of O32 r 11(6) of the former rules (being the Federal Court Rules 1979 (Cth)), which related to offers made by a respondent (see Clark (No 2) at [5]). As was observed, in such a case the respondent could make an offer of $1 and then be able to claim indemnity costs should the proceedings be dismissed. In such circumstances, the offer was never a genuine offer to settle the proceedings, which could bring about an unfair result: Crown Insurance at [32]; Sandoz Pty Ltd v H. Lundbeck A/S (No 2) [2021] FCAFC 47 at [17] (Nicholas, Yates and Beach JJ) (while Sandoz was overturned on appeal in H Lundbeck A/S v Sandoz Pty Ltd (2022) 276 CLR 170; [2022] HCA 4, the High Court’s reasoning turned on the construction of the relevant license and the particular settlement agreement, in the context of the Patents Act 1990 (Cth). Costs were overturned as a consequence of the success of the appeal, but not questioning the principles enunciated by the Full Court, see [79] (Kiefel CJ, Gageler, Steward and Gleeson JJ). For these reasons, such remarks from Clark (No 2) should not simply be imposed on the terms of r 24.15(3) of the Rules.

60    Ultimately, the Applicants rely on r 25.14(3) of the Rules, on the basis that the judgment obtained in the Trust proceeding (being the dismissal) was more favourable than the terms of the 26 May 2025 offer. This, the Applicants then submit, entitles them to indemnity costs in the Trust proceeding.

Costs of the Tax Appeals

61    As is clear from the Judgment, the Tax Appeals considered alternative amended assessments issued to different (but related) taxpayers, concerning the same property syndicate income. The Commissioner advanced his primary position in reliance on the amended assessments issued to Mr Larmar in the Personal proceeding. The Commissioner was successful on that primary position. However, the Commissioner did also advance an alternative position, on the basis of alternative assessments issued to Services. If Mr Larmar had discharged his onus to establish that those amended assessments were excessive, then the Commissioner relied on those alternative amended assessments to Services. As is correctly submitted by both parties, plainly both Tax Appeals could not be dismissed, such that all of the amended assessments issued to Mr Larmar and Services were still valid and operative. At best, the Commissioner could only succeed on one position, even though the Commissioner may issue assessments on alternative bases to different taxpayers, in respect of the same income for the same income year: Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55; [1988] HCA 29 at 67 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ); Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168; [1995] HCA 23 at 188 (Mason CJ), at 200-202 (Brennan J), 216-217 (Dawson J, with whom Deane and Gaudron JJ agreed at 214), 228 (Toohey J), at 237-238 (McHugh J); Hyder v Federal Commissioner of Taxation (2023) 297 FCR 124; [2023] FCAFC 29 at [58] (Logan, Bromwich and Hespe JJ).

62    Each of the Tax Appeals were based on a common substratum of facts. The May 2024 Orders reflected this, as the Tax Appeals were heard together. The first case management orders in the Trust proceeding of 1 June 2023 did not require either party to progress the proceeding by filing an appeal statement or the material pursuant to r 33.03 of the Rules. This position continued by the orders of 21 November 2023. Similarly in the Personal proceeding, the first case management orders of 13 February 2023 did not require either party to file an appeal statement or the material pursuant to r 33.03 of the Rules. Effectively this position continued until the May 2024 Orders. By the time of the May 2024 Orders, both related matters were ready to proceed and the May 2024 Orders reflected that the proceedings were then to be heard together. Effectively both were held in abeyance until both were ready to proceed, it being appropriate and preferrable for the matters to be heard together.

63    Although separate proceedings against each of the objection decisions for each of the taxpayers must be filed, it is quite artificial in this case, to consider these proceedings as two separate and distinct proceedings. The May 2024 Orders were the first substantive case management orders made in the Tax Appeals and were made at a time when both matters could be considered together. Mr Larmar and Services were represented by the same solicitors and counsel, and the Commissioner similarly was represented by the same solicitors and counsel in the Tax Appeals. The final Appeal Statements were only filed in the Personal proceeding and after the May 2024 Orders dealt with all of the relevant issues in the Tax Appeals (in one document considering both the Personal proceeding and the Trust proceeding). Mr Larmar’s evidence addressed the common substratum of facts. He did not file separate affidavits in the Personal proceeding and the Trust proceeding (given the May 2024 Orders) but neither did Mr Larmar divide the content of the evidence given to be directed to one proceeding or the other. Similarly a consolidated Court Book (which contained relevant material for both the Personal proceeding and the Trust proceeding) and final closing submissions were filed which recorded the court headings for each of the Personal proceeding and Trust proceeding and dealt with all of the relevant issues.

64    However, as is reflected in the Orders sought by each of the parties (including by way of separate submissions by the Applicants) the costs attempt to separately deal with each of the Tax Appeals, in a way which is not properly reflective of the way the proceedings were conducted. This is apart from the Applicants’ alternative position whereby it is expressly recognised that as a result of the Tax Appeals being heard together, it may be a problematic exercise in allocating costs between each proceeding, and as such there should be no order as to costs in either of the Tax Appeals. Although there may be some difficulty in allocating costs, it is not an insurmountable difficulty. Furthermore, there being no order as to costs in either of the Tax Appeals does not properly reflect the result of the litigation, being the most important factor guiding the exercise of discretion in relation to costs. As such, I reject the alternative position of the Applicants that there should be no order as to costs in either of the Tax Appeals.

65    The Applicants submit that the Commissioner should be entitled to his costs on the Personal proceeding (on a party and party basis) but they seek for their costs of the Trust proceeding, on an indemnity basis. Broadly, this appears to be on the basis that if each of the Tax Appeals is separately considered, the Applicants seek orders for costs to follow the event.

66    However, such an order does not actually reflect how the Tax Appeals were dealt with, heard and determined. If such a submission were accepted it would involve an artificial approach to be taken to the related proceedings which were heard together. It would involve a strict separate consideration of each of the Tax Appeals, in circumstances where that was not how the matters progressed. Furthermore, indemnity costs in the Trust proceeding does not capture the dependant nature of the Applicants’ offers made on 26 May 2025. The 26 May 2025 offer in the Trust proceeding (which is relied on by the Applicants to seek indemnity costs) was made at the same time as the offer in the Personal proceeding. The offers were contingent, in the sense that if the Commissioner accepted the offer in the Trust proceeding, the offer in the Personal proceeding had no further work to do. Each of the offers provided that the parties would bear their own costs. The 26 May 2025 offer was made shortly before the trial was to commence on 2 June 2025 and in fact would have expired (being open for 14 days) during the trial.

67    Although it is not necessary to conclude that the Commissioner’s refusal was unreasonable, the reasonableness of the position taken by the Commissioner is relevant: see [19] above. The Tax Appeals concerned alternative assessments and the Applicants did not submit that the Commissioner was engaging in “oppressive” conduct by doing so; the offers were reflective of the agreed position that the Commissioner could not recover on both alternative assessments. It is not simply the position that the Commissioner’s refusal of the offer in the Trust proceeding was reasonable. The offer could only be accepted in circumstances where the offer then in the Personal proceeding would necessarily have “no work to do”. Overall, that would have resulted in a less favourable position for the Commissioner (as is clear from the terms of each contingent offer, see [52]-[53]). This is a proper reason to rebut the presumption and exercise the discretion under r 1.35 of the Rules. Considering the Tax Appeals together, which was also the way the offer was framed, the Applicants would have been in a more favourable position if the Commissioner had of accepted the offer in the Trust proceeding, as it would have also amounted to a rejection of the offer in the Personal proceeding. In some ways, this is an unusual and somewhat exceptional circumstance, however, it is based on the way the offers were framed.

68    For those reasons I reject the contention of the Applicants that they are entitled to indemnity costs in the Trust proceeding. That prima facie position has been rebutted for the above reasons. In all of the circumstances, particularly the contingent basis of the offer in the Trust proceeding and a consideration of the overall position, I would exercise the power under r 1.35 to make an order inconsistent with the Rules.

69    The Commissioner also seeks indemnity costs of the Tax Appeals on the basis of his 29 May 2025 Calderbank offer. However, considering the factors from Game Meats (see [16] above) that offer was made effectively 1 business day prior to the trial commencing and it was open for less than 24 hours. That is, the offer was made very late and it was only open for a short period of time. The compromise offered was genuine and considerable and the terms offered were somewhat clear. Those terms included that a deed which was yet to be drafted, would be entered and security would be required for the payment sum. In this sense there may have been some lack of clarity. In these circumstances, I do not regard the Applicants’ rejection of the Commissioner’s 29 May 2025 offer as unreasonable. For those reasons I reject the contention of the Commissioner that he should be awarded indemnity costs in the Tax Appeals or in the Personal proceeding.

70    It is then to consider the costs to be awarded. Each of the Tax Appeals were considering alternative assessments to each other, and were intertwined.

71    The Commissioner was successful in the Personal proceeding, being his primary position. By far the most important factor, as a guiding principle for exercising the discretion in relation to costs, is the result of the litigation. On this basis, the Commissioner should be entitled to his costs of the Personal proceeding.

72    The Tax Appeals were intertwined, overlapped and were based on a common substratum of facts. Ultimately the merits of the Trust proceeding did not require consideration. The issues to be decided on each of the alternative assessments were different but were based on that common substratum of facts. In these circumstances, an analogy might be drawn with a consideration of costs on an issues basis. However, the mere fact that not all arguments were accepted does not necessarily make it appropriate to apportion costs on an issues basis (and noting that the alternative positions could not both be accepted), generally an issue-by-issue basis is not ordinarily desirable: see [14] above.

73    Once it is accepted that an issues basis approach is not desirable, consideration should be given to whether separate costs orders should be made in each of the Personal proceeding and the Trust proceeding. As is clear, that approach does not properly reflect how the Tax Appeals were dealt with and heard. It also does not reflect the measure of success that the Commissioner had in the Tax Appeals. The overall event was that the Commissioner was successful. This is usually regarded as the most important factor.

74    The Commissioner, however, did not enjoy complete success on every single issue. He issued alternative assessments and those were necessarily excessive, given his success in the Personal proceeding.

75    Neither party sought to analyse the work done, material filed or time taken in the hearing or allocated a proportion or percentage to the Personal proceeding and separately the Trust proceeding. The parties are not to be criticised for such an approach, as exercises of that nature are to be deprecated as attempts at some sort of mathematical precision are not appropriate: Lucas Earthmovers Pty Ltd v Anglogold Ashanti Australia Ltd (No 2) [2019] FCA 1864 at [33]-[35] (White J). Generally, if costs are to be allocated relating to the issues involved, a broad brush approach based on matters of impression and evaluation should be undertaken: Ridge Estate Pty Ltd v Fairfield Pastoral Holdings Pty Ltd (2024) 302 FCR 375; [2024] FCAFC 17 at [206] (Banks-Smith J, with whom O’Sullivan J at [217] and Feutrill J at [219] agreed).

76    In such circumstances (although not advanced by either party) it is appropriate for some allowance to be made for the Commissioner’s lack of success in the Trust proceeding. Given the common substratum of facts, the overlapping nature of many of the legal and factual issues involved and the way the proceedings were conducted (as detailed above) such allowance should recognise the somewhat limited success of the Applicants. That “success” was consequential on the success of the Commissioner in the Personal proceeding: he could not succeed in both proceedings. It was modest in these particular circumstances because of the way that the Tax Appeals were dealt with and heard. The parties properly and efficiently had one set of lawyers, mostly filed one set of materials and the matters progressed together.

77    Taking that impressionistic, evaluative and broad brush approach the Commissioner should be entitled to 85% of his costs of the Tax Appeals. Ultimately he was successful, but not successful on all issues and some allowance should be made for that. However, given the approach, that allowance should be modest and 15% is an appropriate measure of that allowance.

78    However, and noting the Applicants’ submission regarding the difficulty of allocating costs between the two proceedings, the order for costs should be across both proceedings. Further, in terms of assessing those, the general preference of the Court is to make costs orders on a lump sum basis: see GPN-Costs at section 4. Rule 40.02(b) expressly recognises that costs may be awarded on a lump sum basis. The purpose of awarding costs on a lump sum basis is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation: Innes v AAL Aviation Ltd (No 2) [2018] FCAFC 130 at [12] (Tracey, Bromberg and White JJ); Paciocco v Australian and New Zealand Banking Group Ltd (No 2) (2017) 253 FCR 403; [2017] FCAFC 146 at [15] (Allsop CJ, Besanko and Middleton JJ). The discretion to award lump sum costs is unconfined and maybe exercised when the circumstances warrant it: Innes at [16]. There are a number of relevant principles applicable to a lump sum costs determination: Jadwan Pty Ltd v Rae Partners (a firm) [2023] FCAFC 182 at [9] (Markovic, Stewart and Anderson JJ). However, difficulties and complexities can arise where costs orders have already been made in the proceeding, and those were not made on a lump sum basis: Deputy Commissioner of Taxation v Widdup (No 3) [2024] FCA 80 at [44] (Wigney J).

79    This matter is an appropriate one for an order as to costs on a lump sum basis. The complexities and overlapping nature of the Personal proceeding and the Trust proceeding will create difficulties in the allocation of costs between the two proceedings. That is not the approach which should be undertaken. It is also the basis for making some allowance by way of a reduction to the overall costs of the Commissioner.

CONCLUSION - COSTS

80    The Commissioner was, for the most part, successful on the Tax Appeals. The most efficient process to avoid delay and expense will be for the costs of the Tax Appeals to be considered together, on a lump sum basis and for the Commissioner to be entitled to 85% of the overall lump sum determination in both the Personal proceeding and the Trust proceeding.

81    Therefore, orders will be made in each of the Personal proceeding and the Trust proceeding for the costs to be considered on a consolidated, lump sum (party and party) basis and for the Commissioner to be entitled to 85% of that overall determination. The determination of the fixed lump sum amount will be by a Registrar of the Court.

Associate:    

Dated:    11 September 2026