TRINITY COLLEGE v COMMISSIONER OF TAXATION [2024] SASC 41

Applicant: TRINITY COLLEGE Counsel: DR B WALRUT - Solicitor: LYNCH MEYER LAWYERS Respondent: COMMISSIONER OF TAXATION Counsel: MR S WHITTEN WITH MR S O'FLAHERTY - Solicitor: CROWN SOLICITOR (SA) Hearing Date/s: 07/02/2024 File No/s: SCCIV-19-417 B SUPREME COURT OF SOUTH AUSTRALIA (Civil: Application) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment. The onus remains on any person using material in the judgment 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 in which it was generated. TRINITY COLLEGE v COMMISSIONER OF STATE TAXATION (No 2) [2024] SASC 41 Judgment of the Honourable Justice Blue 21 March 2024 PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - INDEMNITY COSTS PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - GENERAL RULE: COSTS FOLLOW EVENT - GENERAL PRINCIPLES AND EXERCISE OF DISCRETION Application for costs. The appeal by Trinity College Gawler Inc against a decision by the Treasurer of South Australia affirming a decision by the Commissioner of State Taxation that (with four exceptions) Trinity is not exempt from payroll tax under the Payroll Tax Act 2009 (SA) in respect of wages paid to employees working at its STARplex centre was largely allowed: Trinity College Gawler Inc v Commissioner of State Taxation [2023] SASC 178. Trinity seeks an order that the Commissioner pay its costs of the appeal on an indemnity basis after, and by reason of, Calderbank offers made by it in August 2019, February 2020 or August 2021. Held: 1. Discussion of costs principles when Calderbank offer not accepted (at [36]-[64]). 2. It was not unreasonable for the Commissioner not to accept the 12 August 2019 offers and the discretion to order indemnity costs should not be exercised (at [113] and [155]). 3. It was not unreasonable for the Commissioner not to accept the 10 February 2020 offer and the discretion to order indemnity costs should not be exercised (at [192]). 4. It was not unreasonable for the Commissioner not to accept the 3 August 2021 offer and the discretion to order indemnity costs should not be exercised (at [220]). -- 1 of 39 -- 5. The Commissioner should pay Trinity’s costs of the appeal on the standard basis (at [221]). Payroll Tax Act 2009 (SA) s 6, s 7 and s 49; Supreme Court Act 1935 (SA) s 40; Taxation Administration Act 1996 (SA) s 8, 10, 13, 18, 61 and 99, referred to. Alexander v Australian Community Pharmacy Authority (No 3) [2010] FCA 506; Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; Calderbank v Calderbank [1975] 3 All ER 333; Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353; Chief Commissioner of State Revenue v E Group Security Pty Ltd (No 3) [2023] NSWCA 63; Commonwealth v Gretton [2008] NSWCA 117; Cretazzo v Lombardi (1975) 13 SASR 4; Crump v Equine Nutrition Systems Pty Ltd (No 2) [2007] NSWSC 25; Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141; Donald Campbell & Co v Pollak [1927] AC 732; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61; Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115; Ghunaim v Bart (No 2) [2006] NSWCA 82; Grynberg v Muller [2002] NSWSC 350; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; Herning v GWS Machinery Pty Ltd [No 2] [2005] NSWCA 375; Holt v Bunney (No 2) [2020] SASCFC 120; Jones v Bradley (No 2) [2003] NSWCA 258; Latoudis v Casey (1990) 170 CLR 534; Leichardt Municipal Council v Green [2004] NSWCA 341; Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118; Moloney v Hayward (No 2) [2023] SASC 36; Morris v McEwen [2005] SASC 284 (2002) 92 SASR 281; Nominal Defendant v Dighton (No 2) [2012] SASCFC 97; Peter Bodum A/S v DKSH Australia Pty Ltd [2010] FCA 456; Phantom Precision Engineering Pty Ltd v Luscombe (No 2) [2021] SASC 103; Rapuano v Karydis-Frisnan [2013] SASCFC 93; Stipanov v Mier (No 2) [2006] VSC 424, considered. -- 2 of 39 -- TRINITY COLLEGE v COMMISSIONER OF STATE TAXATION (No 2) [2024] SASC 41 Civil 1 BLUE J: I previously largely allowed the appeal by Trinity College Gawler Inc (Trinity) effectively against a decision by the Commissioner of State Taxation (the Commissioner) that (with four exceptions) wages paid to employees working at Trinity’s STARplex centre (Starplex) are not exempt from payroll tax under the Payroll Tax Act 2009 (SA) (the Act). 1 2 Trinity seeks an order that the Commissioner pay its costs of the appeal on an indemnity basis after, and by reason of, Calderbank offers made by it in August 2019, February 2020 or August 2021. 3 The Commissioner does not oppose an order that she pay Trinity’s costs of the appeal on the standard basis but opposes any order for indemnity costs. Background 4 On 12 April 2017 Trinity’s accountants lodged with the Commissioner an application for exemption from payroll tax in respect of wages paid to Starplex staff. 5 On 5 July 2017 the Commissioner sent a letter to Trinity’s accountants determining that wages paid to the two exercise physiologists and two dietitians were exempt, but otherwise refusing the application. 6 On 31 July 2017 Trinity’s accountants lodged with the Minister for Finance an objection against the Commissioner’s decision. On 30 April 2018 the Treasurer disallowed the objection and confirmed the Commissioner’s decision. 7 On 19 July 2018 Trinity’s solicitors sent a letter to the Commissioner applying for a refund of payroll tax paid in respect of the financial years ending on 30 June 2013 and 30 June 2014 on the basis of the April 2017 exemption application. 8 For ease of reference, I refer to a financial year ending on 30 June 20XX as the 20XX financial year. 9 Trinity’s solicitors subsequently made applications for refunds in respect of the 2015, 2016, 2017, 2018 and 2019 financial years on 29 July 2019, 24 June 2020, 24 June 2021, 28 July 2022 and 4 July 2023 respectively. 10 On 25 October 2018 the Payroll Tax (Exemption for Small Business) Amendment Act 2018 (SA) was enacted. It amended the Act (including by inserting new Schedule 1A) with retrospective effect from 1 July 2018 and 1 Trinity College Gawler Inc v Commissioner of State Taxation [2023] SASC 178. -- 3 of 39 -- [2024] SASC 41 Blue J 2 amended Schedule 1 with effect from 1 July 2019. The effect of the amendments, broadly described, was to increase the threshold for payroll tax to wages of $1.5 million per annum with effect from 1 January 2019 but to leave the deductible at $600,000. The provisions in respect of the transition year, being the 2019 financial year, were very complex. 11 On 11 April 2019 Trinity instituted the appeal. 12 On 12 August 2019 Trinity’s solicitors sent to the Commissioner’s solicitors two Calderbank2 letters (Trinity’s offer 1A and offer 1B) offering to resolve the appeal. The offers contained identical terms with one exception. Each offer was expressed to be open for acceptance until withdrawn on at least 28 days’ notice. The central term was that amended assessments be issued exempting from the 2017 financial year onwards wages paid to Starplex employees except: • StarStore employees; • Creche employees; • Membership employees; • Promotions employees; and • Theatre employees. 13 Offer 1B contained an additional term that the Commissioner pay a refund of payroll tax in the fixed sum of $450,000 in respect of the 2013 to 2019 financial years. The letter stated that, in the absence of agreement, Trinity would be entitled to a refund of approximately $900,000 in respect of those financial years based on the premise referred to in the previous paragraph. 14 On 2 September 2019 Mr Martin’s first affidavit was filed. 15 On 20 December 2019 the Commissioner’s solicitors sent to Trinity’s solicitors a Calderbank letter (the Commissioner’s first offer) rejecting both Trinity offers. They offered to resolve the appeal on the basis of exempting from the 2016 financial year onwards wages paid to two masseurs in the Fitness Centre, four employees in or partly in the StarStore and two swimming instructors and a coach in the Swim Centre who spent at least 90 per cent of their time on College activities. The offer was expressed to be open for acceptance until withdrawn. 16 On 17 January 2020 there was a “without prejudice” meeting between the lawyers for the parties. Evidence was not adduced of its content. 17 On 10 February 2020 Trinity’s solicitors sent to the Commissioner’s solicitors a Calderbank letter (Trinity’s offer 2) offering to resolve the appeal. The 2 Calderbank v Calderbank [1975] 3 All ER 333. -- 4 of 39 -- [2024] SASC 41 Blue J 3 offer was expressed to be a revised version of offer 1B (which it superseded) and the Commissioner could accept original offer 1A or offer 2 being the revised version of offer 1B. The offer was expressed to be open for acceptance until withdrawn on at least 28 days’ notice. The central term was that amended assessments be issued exempting from the 2013 financial year onwards: • wages paid to Starplex employees listed in the Commissioner’s first offer; • 75 per cent of wages paid to Theatre employees; • 70 per cent of wages paid to Management employees; • 65 per cent of wages paid to Swim Centre and Court Centre employees (other than those in the first category); and • 50 per cent of wages paid to Fitness Centre (other than those in the first category), Creche, Reception, Membership, Promotions and Training employees. 18 On 23 March 2021 Mr Wenske’s first affidavit and Mr Martin’s second affidavit were filed. 19 On 8 July 2021 the Commissioner’s solicitors sent to Trinity’s solicitors a Calderbank letter (the Commissioner’s second offer) offering to resolve the appeal on the basis of exempting from the 2016 financial year onwards wages paid to employees the subject of the Commissioner’s first offer together with employees in the Fitness Centre. The offer was expressed to be open for acceptance until 22 July 2021. 20 On 3 August 2021 Trinity’s solicitors sent to the Commissioner’s solicitors a Calderbank letter (Trinity’s offer 3) offering to resolve the appeal. The offer was expressed to be open for acceptance until 17 August 2021. The central term was that amended assessments be issued exempting from the 2013 financial year onwards wages paid to Starplex employees except: • Management employees; • Training employees; • Court Centre employees; • Theatre employees; and • Promotions employees. 21 On 12 August 2021 the Commissioner’s solicitors sent to Trinity’s solicitors a Calderbank letter rejecting Trinity’s offer 3 and reiterating the Commissioner’s second offer, which was expressed to be open for acceptance until 27 August 2021. -- 5 of 39 -- [2024] SASC 41 Blue J 4 22 On 20 August 2021 Trinity’s solicitors sent to the Commissioner’s solicitors a Calderbank letter rejecting the Commissioner’s second offer and referring to Trinity’s offer 3. 23 On 20 June 2022 the trial commenced. On 28 June 2022 the trial was adjourned, ultimately to 6 March 2023. 24 On 19 August 2022 Mr Warland’s first affidavit was filed. 25 On 6 February and 5 March 2023 respectively Mr Warland’s second affidavit and Mr Wenske’s second affidavit were filed. 26 On 6 March 2023 the trial resumed and evidence was completed on 9 March 2023. 27 The wages and payroll tax paid by Trinity for the 2013 to 2022 financial years in respect of Starplex employees other than those recognised by the Commissioner in 2017 as exempt,3 were as follows: Year Wages per Trinity breakdowns4 Difference Wages per Annual Reconciliations5 Payroll tax paid6 2013 3,266,173 30,678 3,296,851 133,494 2014 3,076,481 38,926 3,115,407 124,513 2015 3,043,795 37,274 3,081,069 122,812 2016 3,130,553 18,680 3,149,233 126,817 2017 3,108,637 27,536 3,136,173 125,541 2018 3,062,809 14,283 3,077,092 122,616 2019 2,991,524 12,691 3,004,215 119,009 2020 3,561,838 26,082 3,587,9207 90,2598 2021 3,300,435 50,811 3,351,2469 9,77910 2022 2,933,634 4,100 2,937,734 115,717 Total 31,475,879 261,061 31,736,940 1,090,557 3 Four employees being two exercise physiologists and two dietitians. Their wages were $121,762 in 2013, $131,136 in 2014, $160,375 in 2015, $163,417 in 2016, $177,564 in 2017, $168,935 in 2018, $90,474 in 2019 and $0 thereafter. 4 Excluding two exercise physiologists and two dietitians. 5 Excluding two exercise physiologists and two dietitians. 6 Excluding two exercise physiologists and two dietitians. 7 $3,010,582 subject to payroll tax plus JobKeeper payments of $577,338 (not subject to payroll tax). 8 Payroll tax was lower for 2020 financial year because, amongst other things, no payroll tax was payable in respect of JobKeeper payments. 9 $2,850,420 subject to payroll tax plus JobKeeper payments of $500,826 (not subject to payroll tax). 10 Payroll tax was lower for 2021 financial year because, amongst other things, no payroll tax was payable in respect of JobKeeper payments. -- 6 of 39 -- [2024] SASC 41 Blue J 5 Evidence on costs hearing 28 At the costs hearing, I received evidence of the communications between the parties comprising their Calderbank offers and responses and evidence of the annual reconciliations lodged by Trinity with the Commissioner in respect of the 2012 to 2022 financial years (the Annual Reconciliations). 29 I also received breakdowns of wages and payroll tax by area within Trinity’s Starplex Centre extracted from Trinity’s payroll accounting system (the Trinity breakdowns). I have used the Trinity breakdowns in calculations below comparing payroll tax payable under my judgment and under Trinity’s various offers. There are four, relatively minor, qualifications in respect of the Trinity breakdowns. 30 The first qualification is that the Trinity breakdowns show wages for Membership and Promotions combined rather than separate figures for each area due to the configuration of Trinity’s payroll accounting system. This is relevant only in relation to Trinity’s offer 3 because it is only in that offer that Trinity distinguished between wages paid to staff working in Membership (exempt) and Promotions (non-exempt). For the purposes of the calculations in this judgment, the combined wages for Membership and Promotions have been allocated between them in proportion to the number of full-time equivalent staff working in each area. 31 The second qualification is that the Trinity breakdowns show wages for Management, Reception and Training combined. This is relevant in relation to Trinity’s offer 2 where Trinity distinguished between Management (70 per cent) and Reception and Training (50 per cent), and Trinity’s offer 3 where Trinity distinguished between Reception (exempt) and Management and Training (non- exempt). For the purposes of the calculations in this judgment, 25 per cent of the total wages have been allocated to Reception, 10 per cent of the total wages have been allocated to Training and 65 per cent of the total wages have been allocated to Management. 32 The third qualification is that there are two differences between wages shown in Trinity’s payroll accounting system and the Annual Reconciliations. The first difference is that payroll tax is payable on wages (inclusive of bonuses, allowances and employer superannuation) plus any fringe benefits provided in respect of an employee. Trinity calculates fringe benefits separately to wages. The Trinity breakdowns do not include fringe benefits but the Annual Reconciliations do. The fringe benefits in respect of employees treated as exempt under an offer but not exempt under my judgment or vice versa would be relatively small. 33 The second difference is that wages shown in the Annual Reconciliations are based on wages paid during the financial year. By contrast, wages shown in the Trinity breakdowns have accrual adjustments to reflect the difference between the start of the first pay period and the start of the financial year and the end of the last -- 7 of 39 -- [2024] SASC 41 Blue J 6 pay period and the end of the financial year. These accrual adjustments are also relatively small. 34 The differences between wages shown in the annual reconciliations and the Trinity breakdowns are shown in the table at [27] above. They are relatively small and are immaterial to the comparisons undertaken in this judgment. They have therefore been ignored and the figures contained in the Trinity breakdowns have been used. 35 The fourth qualification is that in the 2013 to 2015 financial years wages were paid to an employee in an area designated as Athlete Development. No evidence was adduced concerning the work performed by that employee because no employee in that area was employed from 2016 onwards. The wages in question are relatively small, ranging from $7,485 in the 2015 financial year to $25,704 in the 2014 financial year. Trinity contends that those wages are exempt under the principles identified in my principal judgment. The Commissioner does not take issue with that contention. In those circumstances and taking into account the relatively small amount involved (which is not material for present purposes), I have treated those wages as being exempt both under my judgment and under the Trinity offers. Costs principles 36 The relevant principles in relation to costs are not in dispute. What is in dispute is their application. 37 Costs are in the discretion of the Court under section 40 of the Supreme Court Act 1935 (SA). The discretion is unfettered but must be exercised judicially.11 38 Subject to the exercise of such discretion, the ordinary position is that, as a presumptive general rule or starting point: • costs follow the event;12 and • costs are assessed in accordance with the court scale where applicable.13 39 While the circumstances in which a court will depart from either starting point are not closed or limited, certain criteria and relevant factors have been identified in the decided cases. 11 Cretazzo v Lombardi (1975) 13 SASR 4 at 11 per Bray CJ (with whom Zelling and Jacobs JJ agreed); Holt v Bunney (No 2) [2020] SASCFC 120 at [9] per Kourakis CJ, Nicholson and Hughes JJ. 12 Donald Campbell & Co v Pollak [1927] AC 732 at 812 per Viscount Cave LC (with whom Viscount Dunedin, Lord Phillimore and Lord Carson agreed); Latoudis v Casey (1990) 170 CLR 534 at 542-544, 557 per Dawson J (with whom Brennan J agreed) and 569 per McHugh J. 13 Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [113] per Basten JA (with whom Giles JA and Young CJ in Eq agreed); Moloney v Hayward (No 2) [2023] SASC 36 at [56] per McMillan AJ. -- 8 of 39 -- [2024] SASC 41 Blue J 7 40 Each of these principles is reflected in the Uniform Civil Rules 2020 (SA) (the Uniform Rules).14 Rule 194.5 identifies certain general principles, which are subject to the overriding costs discretion, and which include the general principle that costs follow the event. Rule 193.1(1) provides that the ordinary position in the Supreme Court is that costs are payable by reference to the Higher Courts costs scale.15 41 Rule 194.6 identifies non-exhaustively certain potentially relevant factors, including non-acceptance by a party of an offer made by another party to resolve the proceeding. 42 Without the discretion being fettered or the categories being closed, there are several established circumstances in which a court may depart from the ordinary or starting position that costs follow the event and costs are on the relevant court scale (a special costs order). 43 One such circumstance is when it is established that one party unreasonably rejected an informal compromise offer by the other party to resolve the action under which the offeree would have been better off than under the court’s judgment following trial. 44 Several observations apply in respect of this circumstance. 45 First, there are effectively five elements to this established circumstance (or more accurately set of circumstances): 1 The party seeking the special costs order made an informal offer to the other party; 2 The offer was an offer to resolve the action; 3 The offer involved genuine compromise;16 4 The offeree would have been better off accepting the offer compared to the position under the court’s judgment;17 and 5 It was unreasonable for the offeree not to accept the offer.18 46 Secondly, this circumstance remains subject to the overall discretion of the Court which is subject only to the requirement that it be judicially exercised.19 14 Holt v Bunney (No 2) [2020] SASC 120 at [9) per Kourakis CJ, Nicholson and Hughes JJ. 15 See previously Supreme Court Civil Rules 2006 (SA) rule 264(2). 16 See Anderson Group Pty Ltd v Tynan Motors Pty Ltd [No 2] [2006] NSWCA 120 at [8] per Basten JA (with whom Santow JA and Young CJ in Eq agreed) and cases there cited. 17 Jones v Bradley (No 2) [2003] NSWCA 258 at [6]-[8] per Meagher, Beazley and Santow JJA. 18 See Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115 at [16] per Buss JA (with whom Wheeler JA agreed) and cases there cited. 19 Jones v Bradley (No 2) [2003] NSWCA 258 at [8] per Meagher, Beazley and Santow JJA; Phantom Precision Engineering Pty Ltd v Luscombe (No 2) [2021] SASC 103 at [22] per Lovell J.. -- 9 of 39 -- [2024] SASC 41 Blue J 8 Accordingly, the mere fact that the elements identified above are satisfied does not necessarily entail that the Court will make a special costs order departing from the ordinary position. It is necessary to consider all relevant circumstances before so departing. 47 Thirdly, as a corollary of the second observation, the mere fact that one of the elements is not satisfied does not necessarily preclude the Court making a special costs order departing from the ordinary position. It is necessary to consider all of the relevant circumstances. However, the fact, and where relevant the extent, of non-satisfaction of an element will usually be highly important, if not critical, to exercise of the costs discretion. 48 Fourthly, the onus of proof and persuasion is on the party seeking a special costs order.20 Informal offer 49 The offer must be capable of acceptance so as to give rise to an agreement for the performance of terms and/or the entry of a consent judgment. 50 I use the term “informal offer” to distinguish a formal offer under rule 132.4 of the Uniform Rules. In the latter case, rule 132.10 of the Uniform Rules sets out prima facie costs consequences of non-acceptance of a formal offer which amounts to a “relevant offer” as defined when the judgment of the Court is less favourable to the offeree than under the offer; and rule 132.11 applies to formal offers which are not relevant offers as defined. 51 When the offeror relies on non-acceptance of an informal offer when the offeror was precluded by the Rules from making a formal offer (or a formal offer in those terms), that fact may be a relevant factor to the exercise of the costs discretion.21 When the offeror could have made a formal offer but chose instead to make an informal offer, that fact may (depending on the circumstances) be a relevant factor to the exercise of the costs discretion.22 20 Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] per Giles, Ipp and Tobias JJA; Commonwealth v Gretton [2008] NSWCA 117 at [46], [74] per Beazley JA (with whom Mason P agreed); Ghunaim v Bart (No 2) [2006] NSWCA 82 at [25] per McColl JA (with whom Giles and Ipp JA agreed); Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115 at [21] per Buss JA (with whom Wheeler JA agreed). 21 Morris v McEwen [2005] SASC 284, (2002) 92 SASR 281 at [75] per White J (with whom Debelle J agreed); Moloney v Hayward (No 2) [2023] SASC 36 at [41] per McMillan J; Chief Commissioner of State Revenue v E Group Security Pty Ltd (No 3) [2023] NSWCA 63 at [2] per Brereton JA (with whom Simpson AJA agreed). 22 Morris v McEwen (2002) 92 SASR 281 at [74]-[75] per White J (with whom Debelle J agreed); Moloney v Hayward (No 2) [2023] SASC 36 at [41] per McMillan J; Chief Commissioner of State Revenue v E Group Security Pty Ltd (No 3) [2023] NSWCA 63 at [2] per Brereton JA (with whom Simpson AJA agreed). -- 10 of 39 -- [2024] SASC 41 Blue J 9 Offer to resolve action 52 The offer must be to resolve the action. An offer to resolve an issue in or part only of an action might give rise to different costs considerations but this does not arise in the present case. 53 If the offer contains terms relating to matters extraneous to the action, that is likely to be a factor relevant to the exercise of the discretion.23 Genuine compromise 54 The offer must involve genuine compromise.24 If the offer involves a complete capitulation by the offeree, its non-acceptance would not be capable of giving rise to a special costs order.25 This is assessed objectively but as at the time of the offer. 55 If the offer involves genuine compromise, the extent of the compromise may be a factor in determining whether a special costs order should be made.26 In Alexander v Australian Community Pharmacy Authority (No 3)27 Bromberg J said: …[T]he extent of the compromise involved is a relevant consideration in determining whether the rejection of the compromise offer was unreasonable... To give weight to the extent of the compromise offered is in keeping with the underlying policy of encouraging settlement. Borderline offers of compromise ought not be given the same potency as generous offers which are far more likely to encourage settlement. 28 56 In most cases, it will be relatively easy to determine and measure the position of the offeror if successful in the action and compare that with the prospective position of the offeror under the offer to determine whether there is compromise and its extent. However, in some cases, this will be difficult. If the relief sought is to be, or may be, assessed in non-monetary or qualitative terms, it may be difficult to assess the nature or extent of the relief if the applicant is successful. If the relief sought is to be assessed in purely monetary terms such as a claim for damages, there may be uncertainty about the quantum that would be awarded if the applicant is successful. 23 Rapuano v Karydis-Frisnan [2013 SASCFC 93 at [49]-[52] per Peek J (with whom Vanstone and David JJ agreed). 24 Leichardt Municipal Council v Green [2004] NSWCA 341 at [56] per Santow JA (with whom Bryson JA and Stein AJA agreed); Herning v GWS Machinery Pty Ltd [No 2] [2005] NSWCA 375 at [4] per Handley, Beazley and Basten JJA; Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120 at [8] per Basten JA (with whom Santow JA and Young CJ in Eq agreed). 25 Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120 at [8] per Basten JA (with whom Santow JA and Young CJ in Eq agreed). 26 Peter Bodum A/S v DKSH Australia Pty Ltd [2010] FCA 456 at [8] per Middleton J; Alexander v Australian Community Pharmacy Authority (No 3) [2010] FCA 506 at [32] per Bromberg J. 27 [2010] FCA 506. 28 At [32]. -- 11 of 39 -- [2024] SASC 41 Blue J 10 Offeree better off 57 The terms of the offer must ordinarily be such that the offeree would have been better off accepting it compared to the position under the Court’s judgment.29 If not, it is unlikely to give rise to the exercise of the discretion to make a special costs order (although if the positions are very close, this may not be fatal to the discretion to make a special costs order). 58 In most cases, it will be relatively easy to determine and measure the position of the offeror under the judgment in the action and compare that with the position of the offeror under the offer. However, in some cases, this will be difficult. If the relief sought is to be or may be assessed in non-monetary or qualitative terms, it may be difficult to make the comparison. If the comparison involves both qualitative and quantitative elements, it may be difficult to make the comparison. Unreasonable not to accept offer 59 It must have been unreasonable for the offeree not to accept the offer. This is a critical element. The discretion to make a special costs order on the ground of non-acceptance of an offer will not be exercised without establishment of this element.30 60 The assessment of reasonableness is objective, but it is assessed as at the time of non-acceptance and by reference to matters known or which ought to have been known by the offeree at that time. It is not assessed with the benefit of hindsight.31 61 It is necessary to consider all relevant circumstances in assessing such reasonableness.32 Without being exhaustive, relevant circumstances33 include: 29 Jones v Bradley (No 2) [2003] NSWCA 258 at [6]-[8] per Meagher, Beazley and Santow JJA. 30 Jones v Bradley (No 2) [2003] NSWCA 258 at [7]-[9] per Meagher, Beazley and Santow JJA; Herning v GWS Machinery Pty Ltd [No 2] [2005] NSWCA 375 at [4] per Handley, Beazley and Basten JJA; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [23] per Warren CJ, Maxwell P and Harper AJA; Ofria v Cameron (No 2) [2008] NSWCA 242 at [20] per Beazley, Ipp JJA and Handley AJA; Ghunaim v Bart (No 2) [2006] NSWCA 82 at [23] per McColl JA (with whom Giles and Ipp JA agreed); Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115 at [16] per Buss JA (with whom Wheeler JA agreed). 31 Grynberg v Muller [2002] NSWSC 350 at [48] per Hamilton J; Stipanov v Mier (No 2) [2006] VSC 424 at [12] per Hollingworth J; Crump v Equine Nutrition Systems Pty Ltd (No 2) [2007] NSWSC 25 at [45] per Hoeben J; Phantom Precision Engineering Pty Ltd v Luscombe (No 2) [2021] SASC 103 at [22] per Lovell J. 32 Jones v Bradley (No 2) [2003] NSWCA 258 at [7]-[9] per Meagher, Beazley and Santow JJA; Leichardt Municipal Council v Green [2004] NSWCA 341 at [46] per Santow JA (with whom Bryson JA and Stein AJA agreed); Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [23] per Warren CJ, Maxwell P and Harper AJA; Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115 at [17] per Buss JA (with whom Wheeler JA agreed). 33 See generally Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298, (2005) 13 VR 435 at [25]-27] per Warren CJ, Maxwell P and Harper AJA; Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115 at [19] per Buss JA (with whom Wheeler JA agreed); Nominal Defendant v Dighton (No 2) [2012] SASCFC 97 at [8] per Sulan, Anderson and David JJ. -- 12 of 39 -- [2024] SASC 41 Blue J 11 • the offeree’s prospective prospects of success in respect of liability and quantum; • the extent of compromise involved; • the stage in the action when the offer is made; • the time for which the offer is open; • the clarity of the offer; • whether there is an important and/or difficult question of law involved in the case;34 • whether the offer could have been made as a formal offer;35 • whether the offeror explained the rationale for the offer including explaining why the offeree’s case was untenable or weak or problematic; and • whether the offeror foreshadowed a special costs order being sought. 62 In relation to the sixth factor, in Lodestar Anstalt v Campari America LLC (No 2),36 Allsop CJ, Greenwood, Besanko, Nicholas and Katzmann JJ said: … It is sufficient to say that there was a serious issue raised by Yau about an important point of law under the Trade Marks Act 1995 (Cth). We agree with the submission of Campari America that although Lodestar’s offer involved an element of compromise, it was not a substantial compromise. In saying that, we acknowledge that it is difficult to see what else Lodestar could have offered in the circumstances. Nevertheless, we think that both matters, but particularly the first, are such that we do not think that Campari America’s refusal to accept the offer was unreasonable. 37 63 The mere fact that the offeree would have been better off accepting the offer does not in itself establish unreasonableness.38 64 Unreasonableness must be established on clear grounds.39 34 Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118 at [19] per Allsop CJ, Greenwood, Besanko, Nicholas and Katzmann JJ. 35 See [49]-[51] above. 36 [2016] FCAFC 118. 37 At [19]. 38 Jones v Bradley (No 2) [2003] NSWCA 258 at [7]-[9] per Meagher, Beazley and Santow JJA; Leichardt Municipal Council v Green [2004] NSWCA 341 at [56] per Santow JA (with whom Bryson JA and Stein AJA agreed); Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115 at [18] and [31] per Buss JA (with whom Wheeler JA agreed) and cases there cited. 39 Leichardt Municipal Council v Green [2004] NSWCA 341 at [47] per Santow JA (with whom Bryson JA and Stein AJA agreed); Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [113] per Basten JA (with whom Giles JA and Young CJ in Eq agreed); Ford Motor Co of Australia Ltd v Lo Presti [2009] -- 13 of 39 -- [2024] SASC 41 Blue J 12 Taxation principles 65 As described in my principal judgment, payroll tax is imposed by sections 6 and 7 of the Act. Employers are required to lodge monthly and annual returns and payroll tax is ultimately calculated on an annual basis by reference to financial year. The obligation to pay payroll tax is imposed directly by the Act by reference to wages paid as required to be included in the monthly and annual returns. There is no need for the Commissioner to issue an assessment. 66 Nevertheless, the Commissioner has power under sections 8 to 10 of the Taxation Administration Act 1996 (SA) (the Administration Act) to issue assessments and reassessments. 67 The Commissioner has specific power to issue a compromise assessment. Section 13 of the Administration Act provides: 13—Compromise assessment (1) The Commissioner may, if the Commissioner considers it appropriate to do so to settle a dispute or to avoid undue delay or expense or for some other reason, make an assessment of a tax liability in accordance with a written agreement between the Commissioner and the taxpayer. (2) If the Commissioner has made an assessment of a tax liability of a taxpayer under this section, the Commissioner cannot make a reassessment of the taxpayer's liability except— (a) with the agreement of the taxpayer; or (b) where the assessment under this section was procured by fraud or there was a deliberate failure to disclose material information. (3) An assessment or reassessment made under this section with the agreement of a taxpayer (a compromise assessment) is a non-reviewable decision. 68 The Commissioner has the general administration of, amongst others, the Act and the Administration Act. Section 61 of the Administration Act provides: 61—Commissioner has general administration of taxation laws The Commissioner has the general administration of this Act and the other taxation laws. 69 As observed in my principal judgment, it is common ground that the Commissioner has power under this provision to recognise exemptions. 70 Section 18 of the Administration Act confers on a taxpayer a general right,40 to make an application within five years of payment for a refund of tax that has WASCA 115 at [19] per Buss JA (with whom Wheeler JA agreed); Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 at [43] per Giles JA, Handley AJA and Whealey J. 40 This right cannot be exercised if the Commissioner had made an assessment in respect of the matter in respect of which the payment was made. This exception does not apply in the present case and can be ignored. -- 14 of 39 -- [2024] SASC 41 Blue J 13 been overpaid. The Commissioner is required to determine whether there has been an overpayment in accordance with the Commissioner’s contemporaneous general interpretation and assessment practice. If there has been an overpayment, the Commissioner is obliged to refund the amount overpaid. 71 Section 18 contains no provision for interest. The only provision in the Administration Act for interest payable by the Commissioner (as opposed to a taxpayer) is section 99, which provides: 99—Interest to be included in refund resulting from appeal (1) If the result of an assessment or decision by the Supreme Court on an appeal is that the appellant has overpaid tax, the amount of a refund of the tax overpaid must include interest on the amount overpaid calculated on a daily basis from the relevant date until the date it is refunded or otherwise applied under Part 4 at the market rate from time to time applying under Part 5. (2) In subsection (1)— the relevant date means— (a) the date of payment of the amount overpaid; or (b) the date on which the Commissioner made the assessment or decision to which the objection and the appeal relates, whichever is the later. Offer 1A 72 Trinity’s offer 1A was made on 12 August 2019. It (and all other offers made by both parties) was expressed to be made without prejudice save as to costs and in accordance with Calderbank principles. It set out why Trinity contended that it would be successful on the appeal. In respect of section 49 of the Act, it claimed that the work performed by Starplex staff was conventional when compared to like schools and said that there is an increasing trend amongst schools to make their health, recreation and sporting facilities open for use by the public, saying that ultimately this was a factual issue. 73 The principal terms of the offer were: 1 The Commissioner exempt since the application for the exemption [the 2017 to 2019 financial years] wages paid to Starplex employees except StarStore, Creche, Membership, Promotions and Theatre employees and issue assessments under section 13 of the Administration Act accordingly. 2 The Commissioner acknowledge that wages which become payable to a person undertaking work similar to that performed by exempt staff referred to in paragraph 1 are also exempt. -- 15 of 39 -- [2024] SASC 41 Blue J 14 3 If the work performed by a staff member changes in a material way: (a) in respect of an exempt employee, Trinity must notify the Commissioner and the Commissioner may determine whether wages payable to the employee remain exempt; (b) in respect of a non-exempt employee, Trinity may apply for exemption. 4 The appeal be discontinued. 5 The parties bear their own costs of the appeal. 74 The letter attached a table of staff at Starplex. It was very similar to the table exhibited to Mr Martin’s first affidavit (exhibit LDM29). The table, like Mr Martin’s table, showed 125 employees by department, including full-time equivalent percentage. 75 In my principal judgment, I set out Starplex staff by area by reference to Mr Martin’s table. That table is complicated by the fact that four employees worked in two different areas and two of those employees worked in one area that I found was subject of exemption and one that was not. Under my judgment, the wages payable to those four employees are not exempt. Those four employees are allocated in the table below to a single non-exempt area for the sake of simplification. The exercise physiologists and dietitians recognised by the Commissioner in 2017 as exempt are ignored in the table below. That table is as follows: Area Staff numbers FTE Swim Centre 46 15.72 Fitness Centre 3741 8.62 Courts Centre 10 5.6 Theatre 342 0.22 StarStore 443 2.45 Creche 644 1.77 Reception 5 3.2 Membership 5 2.51 Promotions 2 1.22 Training 1 0.64 Management 2 2 Total 121 43.95 41 One employee who worked 10 hours per week in the Fitness Centre and 16 hours per week in Membership is not included under Fitness Centre (employee 58 in Mr Martin’s affidavit). 42 One employee who worked 20 hours per week in the Theatre and 10 hours per week in Membership is not included under Theatre (employee 120 in Mr Martin’s affidavit). 43 One employee worked 6.5 hours per week in the StarStore and 1.5 hours per week in the Creche. 44 One employee worked 8 hours per week in Reception and 2 hours per week in the Creche. -- 16 of 39 -- [2024] SASC 41 Blue J 15 76 In the 2013 to 2015 financial years, wages were paid to an employee in an area designated as Athlete Development. For the reasons given above, for the purposes of the tables in this judgment, wages paid to that employee are treated as exempt. 77 Set out below is a comparison between the offer and my judgment in terms of identity of staff (showing numbers and FTE): Area Exempt staff per offer and judgment Non- exempt staff per offer and judgment Exempt staff per offer but not judgment Exempt staff per judgment but not offer Swim Centre 46/15.72 Fitness Centre 37/8.62 Courts Centre 10/5.6 StarStore 4/2.45 Creche 6/1.77 Membership 6/2.51 Promotions 2/1.22 Reception 5/3.2 Training 1/0.64 Management 2/2 Theatre 3/0.22 78 Set out below is a comparison between the offer and my judgment in terms of taxable wages and payroll tax payable in respect of the 2017 financial year: Area Wages per judgment Wages per offer Tax per judgment Tax per offer Swim Centre - - Fitness Centre - - Courts Centre - - StarStore 202,510 202,510 Creche 148,992 148,992 Membership45 177,852 177,852 Promotions46 86,446 86,446 Reception 139,566 - Management 362,872 - Training 55,826 - 45 Trinity’s records combine wages paid to Membership and Promotions staff. For the purposes of this judgment, the combined wages have been allocated between the two areas in proportion to the FTE in each area. This is irrelevant in respect of all offers except Trinity’s offer 3. In respect of that offer, any inaccuracy is immaterial. 46 See previous footnote. -- 17 of 39 -- [2024] SASC 41 Blue J 16 Theatre - 86,801 Total 1,174,064 702,601 28,416 5,079 79 Set out below is a comparison between the offer and my judgment in terms of wages and payroll tax payable in respect of the 2017 to 2019 financial years: Year Wages per judgment Wages per offer Tax per judgment Tax per offer 2017 1,174,064 702,601 28,416 5,079 2018 1,159,561 632,000 27,698 1,584 2019 1,102,848 644,384 14,466 616 Total wages 3,436,474 1,978,986 Total tax 70,580 7,279 Difference in tax 63,301 Informal offer 80 The Commissioner accepts that offer 1A was an informal offer. 81 The Commissioner contends however that offer 1A contained terms extraneous to the litigation. The Commissioner contends that these extraneous terms could not have been included in a formal offer and in any event should not be taken into account or should be given less weight. 82 Such terms include: 1 The Commissioner acknowledge that wages which become payable to a person undertaking work similar to that performed by the exempt staff are also exempt; and 2 If work performed by a staff member were to change in a material way, Trinity must notify the Commissioner and the Commissioner may determine whether wages payable to an exempt employee remain exempt and, in respect of a non-exempt employee, Trinity may apply for exemption. 83 I do not accept the Commissioner’s contention that these terms could not have been included in a formal offer under the Supreme Court Civil Rules 2013 (SA) (or later under the Uniform Rules). They could have been included as orders as part of a consent judgment or at least as terms of a contract between the parties. They are provisions that are incidental to the primary determination that wages paid to employees are exempt or non-exempt. 84 I do not consider that substantially less weight should be given to the offer to the extent that it addressed these matters. -- 18 of 39 -- [2024] SASC 41 Blue J 17 Genuine compromise 85 The Commissioner accepts that the offer involved a level of compromise but contends that it did not amount to genuine compromise. The Commissioner accepts that the offer entailed 22 employees being non-exempt, which involved compromise to the extent that, if entirely successful on appeal, all employees would have been exempt. 86 However, the Commissioner refers to the fact that the offer would have left a non-exempt payroll of only $702,601 in the 2017 financial year, a non-exempt payroll of only $632,000 in the 2018 financial year, a non-exempt payroll of only $644,384 in the 2019 financial year (each of which was not much higher than the deductible of $600,000) and a non-exempt payroll below the $1.5 million threshold from 1 January 2019 onwards. The Commissioner contends that the offer involved an almost complete capitulation by the Commissioner because very little payroll tax would have been payable under the offer. 87 I reject the Commissioner’s contention. For the same reasons as in respect of the issues of better off and unreasonable non-acceptance addressed below, the question of genuine compromise cannot be assessed purely in terms of payroll tax dollars. The offer involved an ongoing concession by Trinity (compared to complete success on appeal) that wages paid to employees in the Theatre, Creche, StarStore, Promotions and Membership were not exempt. Although as at the date of the offer those wages were below the new $1.5 million threshold, circumstances in the future might change. The legislation might be amended to reduce the threshold. The number of employees in those areas might increase. It is necessary to consider the position qualitatively from the point of view of principle as well as quantitatively from the point of view of payroll tax dollars. Considered holistically, the offer did involve genuine compromise. 88 On the other hand, assessed in purely monetary terms, the offer involved a relatively small discount compared to the position if Trinity were to succeed wholly on the appeal. This is to be taken into account in assessments of unreasonable non-acceptance and holistic consideration. Offeree better off 89 Trinity accepts that under the judgment the quantum of its payroll tax liability in respect of the 2017 to 2019 financial years is higher by $63,301 than it would have been if offer 1A had been accepted. However, it contends that, if its legal costs incurred as at the date of the offer are taken into account, the Commissioner would have been better off accepting the offer. It does not attempt to quantify such legal costs. 90 The Commissioner contends that regard should be had to the identity of employees held to be exempt under the judgment compared to under the offer rather than, more than or as well as a purely financial calculation of payroll tax liability (with or without legal costs). -- 19 of 39 -- [2024] SASC 41 Blue J 18 91 This raises two issues. First, how is the question of better off measured? Secondly, are legal costs incurred by the offeror as at the date of the offer to be taken into account in the comparison? Measure of better off 92 At one extreme, some cases involve purely financial claims that are measured, and can only be measured, in purely monetary terms. An example is a simple claim by a bank against a customer for payment of a loan. 93 At the opposite extreme, some cases involved purely non-financial claims that cannot be measured in monetary terms. An example is a claim for specific performance of a contract to perform a service that has no monetary value (or no monetary value that can be assessed or even estimated). 94 Between these two extremes are hybrid cases that involve claims that have both financial and non-financial aspects. An example is a defamation claim in which the applicant seeks vindication and restoration of reputation as well as monetary compensation. 95 The present case involves a dispute about whether wages of employees performing certain duties are exempt. It relates not to an isolated previous year but rather to ongoing exemption or non-exemption of Trinity’s employees. 96 In this case, the better off analysis cannot be performed in purely monetary terms by merely considering the amount of payroll tax payable for the 2017 to 2019 financial years. Trinity’s application for exemption, and my judgment on its appeal against the Commissioner’s refusal, are not limited in effect to past financial years but have ongoing indefinite future effect. It is necessary to have regard not only to the financial position of the parties in respect of past financial years but also to the issue of principle which has ongoing effect. 97 The issue of principle cannot be measured in purely financial terms or concrete financial terms. It is not possible to predict with any degree of certainty what might occur in future. For example, the payroll in respect of areas held to be exempt might increase and the payroll in respect of areas held not to be exempt might decrease or vice versa. Legislative thresholds and deductibles might change. There could be any number of changes that affect the quantum of payroll tax payable by Trinity. It is therefore necessary to take into account the issues of principle decided by the judgment compared to the issues of principle contained within the offer. Offeror’s legal costs 98 Usually when the comparison is made between the position of the offeree under the offer compared to under the judgment, the offeror’s legal costs as at the date of the offer are not taken into account. There are probably several reasons for this. -- 20 of 39 -- [2024] SASC 41 Blue J 19 99 First, as the issue is as to who should bear the costs of the action and/or on what scale, it may appear incongruous that the costs themselves are taken into account in deciding that question. 100 Secondly, at the time of the offer, there will usually be no certainty as to who will succeed and/or to what extent and hence no certainty about whether the offeror will ultimately recover costs. 101 Thirdly, at the time of the offer, the quantum of costs that the offeror would recover if ultimately successful will usually be quite uncertain. 102 Fourthly, in Calderbank letters, offerors do not usually foreshadow that their costs to date will be taken into account on a subsequent costs application, nor do they usually quantify their costs to date or provide a detailed calculation. Even if costs were to be taken into account on the issue of better off, in those circumstances they might not be taken into account on the issue of unreasonable non-acceptance. 103 This is not to say that costs incurred by the offeror at the date of the offer should never be taken into account on the issue of better off (or unreasonable non- acceptance) but each case will need to be considered on its own circumstances. Analysis 104 As observed above, Trinity does not, on the costs application, quantify the costs that it had incurred in the action as at 12 August 2019 nor adduce any evidence of the work undertaken to that point. At that stage the only documents that had been filed were the initiating proceeding and the response. It would be sheer speculation to attempt to guess the costs on the standard basis incurred by Trinity as at 12 August 2019. Although some work must have been undertaken on Mr Martin’s affidavit to that point, it is speculative to what extent the affidavit had been completed at that stage or to assess the quantum of costs on the standard basis recoverable to that point or subsequently. 105 As observed above, Trinity bears the onus of proof and persuasion. In the absence of evidence about the quantum of its costs incurred as at 12 August 2019, they cannot be taken into account for present purposes. 106 In a purely monetary sense, the payroll tax payable in respect of the 2017 to 2019 financial years by Trinity under the judgment exceeds the amount that would have been payable under the offer. 107 In addition, a direct consequence of acceptance by the Commissioner of the offer would have been that Trinity would have been entitled to refunds of tax paid in respect of the 2013 to 2016 financial years (in addition to tax paid in respect of the 2017 to 2019 financial years). Those refunds would have been in greater amounts than the refunds to which Trinity will be entitled as a consequence of the judgment. This increases the amount by which Trinity would have been better off under offer 1A than it will be under the judgment. -- 21 of 39 -- [2024] SASC 41 Blue J 20 108 The parties debate whether Trinity is entitled to interest on refunds in respect of the 2013 to 2016 financial years. Trinity contends that, for the purposes of section 99 of the Administration Act, the result of the decision on appeal is that Trinity has overpaid tax in respect not only of the financial years the subject of the judgment but also for the prior financial years. The Commissioner takes issue with that contention. It is not necessary to decide this issue. If Trinity is correct, it would have been entitled to greater interest under offer 1A than under the judgment. This would further increase the amount by which Trinity would have been better off under offer 1A than it will be under the judgment. 109 In addition, under the judgment, employees in Reception, Training and Management have been held not to be exempt but would have been exempt under the offer. For the reasons given below, it is not appropriate simply to offset the Theatre employees (who I held are exempt but were not exempt under the offer) against the employees in Reception, Training and Management. In any event the number (3 v 8) and full-time equivalent (0.22 v 5.15) of the latter employees substantially exceeds the former. 110 Trinity has not demonstrated that the Commissioner would have been better off accepting the offer compared to under the judgment. Unreasonable non-acceptance 111 I conclude below that the Commissioner’s non-acceptance of offer 1B was not unreasonable. As the terms of offer 1B were more favourable to the Commissioner than the terms of offer 1A, it follows that the Commissioner’s non- acceptance of offer 1A was not unreasonable. Holistic assessment 112 I take into account the other factors summarised above commonly identified as being relevant factors. Offer 1A was open for a reasonable time. It could have been made as a formal offer but there was no specific detriment to the Commissioner by reason of it not being made as a formal offer. It explained its rationale. It did not explicitly foreshadow a special costs order being sought but this was implicit from its statement that it was made in accordance with Calderbank v Calderbank principles. 113 By reason particularly of the matters addressed under the previous two headings, it is not appropriate to exercise the discretion to order that Trinity recover costs on an indemnity basis. Offer 1B 114 Trinity’s offer 1B was made on 12 August 2019 simultaneously with offer 1A. It contained the same narrative and the same offer terms as offer 1A with one additional term, namely that the Commissioner pay a refund of payroll tax in the fixed sum of $450,000 in respect of the 2013 to 2019 financial years (compared -- 22 of 39 -- [2024] SASC 41 Blue J 21 to what Trinity estimated would be a refund of approximately $900,000 if calculated in accordance with the other terms of the offer). Informal offer 115 The Commissioner contends that offer 1B contained terms extraneous to the litigation, including relating to the entitlement to refunds (other than for the 2017 financial year). The Commissioner contends that these extraneous terms could not have been included in a formal offer and in any event should not be taken into account or should be given less weight. 116 Offer 1B contained the same terms as offer 1A already addressed at [83] above. 117 Offer 1B included a term relating to refunds. I do not accept the Commissioner’s contention that this term could not have been included in a formal offer for the same reasons as in respect of the terms referred to in the previous paragraph. The entitlement to a refund was, as described above, directly consequential on determination of exemption. 118 I do not consider that substantially less weight should be given to the offer to the extent that it addressed these matters. Genuine compromise 119 The Commissioner accepts that the offer involved a level of compromise. My understanding is that the Commissioner does not (unlike offer 1A) contend that this offer did not involve genuine compromise. 120 In any event, offer 1B involved compromise additional to that involved in offer 1A by the term that the Commissioner pay a refund of payroll tax of $450,000 in respect of the 2013 to 2019 financial years. At the time of the offer, Trinity had made, or was still entitled to make, applications for refunds in respect of the 2013 to 2019 financial years. The Commissioner is obliged to determine entitlement to a refund sought in accordance with law. Assessed prospectively as at August 2019 when the offer was made, if Trinity were to succeed wholly on appeal, the Commissioner would have been obliged to make full refunds of payroll tax paid in accordance with the principles determined on appeal. Of course, in theory there might have been a material difference in relation to the work performed by employees over the relevant period but the Commissioner does not suggest that this is in fact the case. 121 If Trinity had succeeded entirely on appeal (such that no payroll tax was payable), it would have been entitled to refunds of payroll tax as follows: Year Wages per returns ($) Tax per returns ($) 2013 3,418,613 139,521 2014 3,246,543 131,004 2015 3,241,444 130,751 -- 23 of 39 -- [2024] SASC 41 Blue J 22 2016 3,312,650 134,276 2017 3,317,737 134,330 2018 3,246,027 130,978 2019 3,094,689 123,487 Refund 924,347 Refund offered -450,000 Compromise 474,347 122 The offer involved compromise to the extent of $474,347. 123 The Commissioner contends, in the context of the unreasonable non- acceptance issue, that the entitlement to refunds (other than for the 2017 financial year) fell outside the scope of the litigation and therefore the terms of the offer as to refunds should not be taken into account or should be given less weight. I address that contention in that context below. 124 In the present context, I accept that strictly the entitlement to refunds is extraneous to the appeal because it is to be determined by the Commissioner outside and following the appeal rather than by the Court on the appeal. However, upon determination of the applicable principles by the Court on the appeal, the Commissioner must apply those principles to a refund application. The right of a taxpayer to a refund follows directly and consequentially upon the determination of the appeal. In those circumstances, for the purposes of assessing extent of compromise, compromise offered in respect of a consequential refund is to be taken into account. 125 Taking into account the refund term of the offer, measured in purely monetary terms, the offer involved a substantial degree of compromise. Nevertheless, for the reasons given above, the extent of compromise cannot be measured in purely monetary or quantitative terms. It is also necessary to take into account the determination of principle, which has indefinite ongoing effect, as to which employees’ wages are exempt from payroll tax. In this respect, offer 1B (like offer 1A) did involve compromise because it involved a concession (contrary to Trinity’s case) that wages paid to StarStore, Creche, Membership, Promotions and Theatre employees are not exempt. Better off 126 Assessed in a purely monetary sense, the Commissioner would have been better off accepting offer 1B compared to the result under my judgment. 127 Trinity will be entitled to refunds of payroll tax under my judgment as follows: Year Wages per judgment Tax per judgment Tax paid Refund 2013 1,205,267 29,961 139,521 109,560 -- 24 of 39 -- [2024] SASC 41 Blue J 23 2014 1,114,713 25,478 131,004 105,526 2015 1,175,135 28,469 130,751 102,282 2016 1,191,015 29,255 134,276 105,021 2017 1,174,064 28,416 134,330 105,914 2018 1,159,561 27,698 130,978 103,280 2019 1,102,848 12,445 123,487 111,042 Total 8,122,604 181,722 924,347 742,625 128 Under the terms of offer 1B, Trinity would have received a refund of $450,000 in respect of those financial years. It will be better off as a result of the judgment by the difference of $292,625. 129 As observed above, technically refunds of past tax paid are outside the scope of the litigation. However, they are directly consequential on the determination of the appeal. They should be taken into account in assessing the better off issue. 130 As observed above, Trinity contends that interest should be taken into account in the better off assessment. I accept that contention in respect of the 2017 financial years onward. The parties debate whether Trinity is entitled to interest on refunds in respect of the 2013 to 2016 financial years. It is not necessary to decide this issue. If Trinity is correct, this would further increase the amount by which Trinity will be better off under the judgment than it would have been under offer 1B. However, as Trinity will already be substantially better off in a monetary sense in respect of the principal payroll tax, it is not necessary to consider interest. 131 For the reasons given above, the assessment of better off is not confined to a monetary or quantitative assessment alone. It also involves a qualitative assessment by reference to the identity of the employees whose wages are exempt or non-exempt from tax. Assessed qualitatively, the Commissioner is better off under the judgment than under the offer for the reasons given at [109] above. 132 The quantitative and qualitative assessments point in different directions. It is not possible to give a binary yes or no answer to the better off question. It is necessary to treat the better off issue as a factor in the overall exercise of the discretion rather than an essential element that is either satisfied or not satisfied. Unreasonable non-acceptance 133 Trinity succeeded on appeal based on the education exemption. The determinative issues were a combination of issues of law relating to the proper construction of the elements of the education exemption coupled with an issue of fact whether and to what extent employees at other schools performed work of the kind performed by Trinity employees working in the different areas at Starplex. 134 In respect of the health exemption, Trinity failed on appeal in respect of all areas except the Fitness Centre. In respect of the Fitness Centre, Trinity succeeded on the issue that it provides a health service. However, if Trinity had failed in -- 25 of 39 -- [2024] SASC 41 Blue J 24 respect of the education exemption, it would have failed in respect of the health exemption unless the employees in question did not provide any education services to Trinity students. Although the evidence did not establish whether this was the case one way or the other in respect of each Fitness Centre employee, it appears inherently likely that most (if not all) such employees provided some educational services to Trinity students. Accordingly, but for its success on the education exemption, Trinity would have largely (if not wholly) lost the appeal. 135 In respect of the charitable purpose exemption, Trinity failed on appeal. 136 It is necessary to consider the Commissioner’s decision not to accept offer 1B at the time of non-acceptance rather than retrospectively with the benefit of hindsight. 137 Offer 1B was made in August 2019. It was expressed to remain open until withdrawn on at least 28 days’ notice. It was expressly withdrawn in February 2020 (when it was superseded by offer 2B). There is a question whether it ceased to be open upon its rejection by the Commissioner in December 2019. 138 Under ordinary contract principles, an offer ceases to be open upon its rejection. However, under ordinary contract principles, an offer could be expressed to remain open despite any rejection and it is possible that this might be implied as a matter of necessary intendment. 139 A Calderbank offer differs from an ordinary contractual offer in that it serves a second purpose in addition to the ordinary contractual offer purpose of comprising a step potentially leading to a contract. That second purpose is to form the basis for an application for a special costs order in litigation. Given this second purpose, a court might more readily find, depending on all the circumstances, that it was implied that the offer would remain open despite any rejection. 140 In the present case, offer 1B was expressed to remain open until withdrawn on at least 28 days’ notice. Given this term and the nature and purpose of the offer, it was probably implied that the offer would remain open despite any rejection but could be withdrawn thereafter on 28 days’ notice. 141 However, it is unnecessary to decide this question because there is no suggestion that anything significant occurred between December 2019 and February 2020: the assessment is the same whether undertaken as at December 2019 or February 2020. 142 The Commissioner contends that offer 1B was made at a relatively early stage of the proceeding before any evidence had been identified and this is a major factor by reason of which it was not unreasonable not to accept the offer. 143 I accept that, when the offer was made on 12 August 2019, no evidence had yet been served by Trinity. However, by December 2019 Mr Martin’s first affidavit had been served. That affidavit provided a relatively comprehensive description of -- 26 of 39 -- [2024] SASC 41 Blue J 25 the areas within Starplex and the work performed by employees within each area. It also provided most of the evidence upon which Trinity relied in relation to other schools. 144 I accept that subsequent affidavits and oral evidence by Trinity witnesses elaborated upon work performed by Starplex employees. Although of significance, by far the major description of that work was contained in Mr Martin’s first affidavit. 145 I accept that Mr Martin’s second affidavit and Mr Kerin’s affidavit provided further information in relation to the South Australian schools described by Mr Martin in his first affidavit and in relation to additional South Australian schools. I accept that there was a small degree of refinement of Mr Martin’s evidence in relation to other schools in cross-examination. 146 I take into account that, after December 2019, the Commissioner received further evidence in relation to work performed at Starplex and in relation to other schools. However, in relation to the latter, the further information was confined to publicly available information which the Commissioner could herself have obtained directly from the websites of other schools. 147 Accordingly, I consider that the Commissioner was in a reasonable position to assess her prospects of success on the education exemption as at December 2019. On the other hand, I accept that some further relevant information was subsequently received by the Commissioner and also that at that early stage the Commissioner did not know precisely what further information might come to light. 148 As at December 2019, and indeed until my judgment, there were no authorities in relation to the legal issues that were determinative in relation to the education exemption. The Commissioner’s position in relation to those legal issues was arguable, albeit ultimately held to be legally incorrect. In relation to other schools, there was an issue as to how many other schools were required to be the subject of evidence to determine what amounted to work “ordinarily performed” within the meaning of the exemption. 149 It is relevant to take into account that the decision in relation to the education exemption turned largely on issues of law important under the Act that had not previously been determined. 150 It is relevant also to take into account the qualitative aspects of the offer. Although in monetary terms the Commissioner would have been better off accepting offer 1B, acceptance of the offer would have entailed the Commissioner accepting for the indefinite future that wages paid to employees in Reception, Training and Management were exempt when the Commissioner (rightly) considered that they were not exempt. -- 27 of 39 -- [2024] SASC 41 Blue J 26 151 The Commissioner was in a different position to an ordinary private litigant who is a party to a contract involving say payment for services. The Commissioner is required to apply the provisions of the Act in making decisions and assessments in relation to the payroll tax liability of all taxpayers. Although not determinative, the Commissioner was entitled to take into account the consequential effects in respect of other taxpayers of accepting vis a vis Trinity that wages paid to employees in Reception, Training and Management were exempt. 152 The Commissioner adopted a principled approach in rejecting offer 1B and making a counter offer. This was based on the Commissioner’s own assessment of the proper construction of the relevant exemptions and the facts. Although the principles adopted by the Commissioner were ultimately held to be incorrect, nevertheless the Commissioner took a principled approach. 153 I take into account all of the relevant factors as summarised above, including in particular the extent of the compromise offered, the differential analysis as to whether the Commissioner would have been better off accepting the offer and the matters referred to in this section. Taking into account all of those matters, it was not unreasonable for the Commissioner not to accept offer 1B. Holistic assessment 154 I take into account the other factors summarised above commonly identified as being relevant factors. Offer 1B was open for a reasonable time. It explained its rationale. It did not explicitly foreshadow a special costs order being sought but this was implicit from its statement that it was made in accordance with Calderbank v Calderbank principles. 155 By reason particularly of the matters addressed under the previous two headings, it is not appropriate to exercise the discretion to order that Trinity recover costs on an indemnity basis by reason of the Commissioner’s non-acceptance of the offer. Offer 2 156 Trinity’s offer 2 was made on 10 February 2020. It contained a narrative developing on the narrative contained in offers 1A and 1B. It said that Trinity appreciated the commercial realities of litigation and the litigation risk in relation to employees in different areas of Starplex. It made an offer to settle the proceeding and the refund applications on a “commercial basis”. The central term was that amended assessments be issued exempting from the 2013 financial year onwards varying percentages of wages paid to employees in different areas at Starplex. The percentages were 50 per cent, 65 per cent, 70 per cent, 75 per cent and 100 per cent (employees listed in the Commissioner’s first offer). 157 The letter explained that the percentages were based on an assessment of litigation risk (rather than principle). In particular, it was not suggested that, if the appeal proceeded to hearing and determination, the wages of employees in -- 28 of 39 -- [2024] SASC 41 Blue J 27 different areas might be apportioned so as to be partially exempt. The letter proceeded on the premise that, if the appeal proceeded to hearing and determination, wages paid to employees in a given area would be held to be either 100 per cent exempt or 100 per cent taxable but there was a litigation risk as to which of these it would be and this was reflected in the nominated percentage. 158 Set out below is a comparison between the offer and my judgment in terms of identity of staff (showing numbers and FTE): Area Exempt staff per judgment Non-exempt staff per judgment Exempt staff per offer Partially non- exempt staff per offer Swim Centre 46/15.72 3/1.76 43/13.96 (35% non-exempt) Fitness Centre 37/8.62 2/0.2 35/8.42 (50% non-exempt) Courts Centre 10/5.6 10/5.6 (35% non-exempt) StarStore 4/2.45 4/2.45 Creche 6/1.77 6/1.77 (50% non-exempt) Membership 5/2.51 5/2.51 (50% non-exempt) Promotions 2/1.22 2/1.22 (50% non-exempt) Reception 5/3.2 5/3.2 (50% non-exempt) Training 1/0.64 1/0.64 (50% non-exempt) Management 2/2 2/2 (30% non-exempt) Theatre 3/0.22 3/0.22 (25% non-exempt) 159 Set out below is a comparison between the offer and my judgment in terms of wages and payroll tax payable in respect of the 2017 financial year: Area Wages per judgment Wages per offer Tax per judgment Tax per offer Swim Centre - 331,735 Fitness Centre - 277,966 Courts Centre - 120,409 StarStore 202,510 - Creche 148,992 74,496 Membership 177,852 88,927 Promotions 86,446 43,222 Reception 139,566 69,783 Management 362,872 108,862 -- 29 of 39 -- [2024] SASC 41 Blue J 28 Training 55,826 27,913 Theatre - 21,700 Total 1,174,064 1,165,013 28,416 27,968 160 Set out below is a comparison between the offer and my judgment in terms of wages and payroll tax payable in respect of the 2013 to 2019 financial years: Year Wages per judgment Wages per offer Tax per judgment Tax per offer 2013 1,205,267 1,233,976 29,961 31,382 2014 1,114,713 1,152,746 25,478 27,361 2015 1,175,135 1,143,176 28,469 26,887 2016 1,191,015 1,180,823 29,255 28,751 2017 1,174,064 1,165,013 28,416 27,968 2018 1,159,561 1,153,722 27,698 27,409 2019 1,102,848 1,153,760 14,466 15,986 Total wages 8,122,604 8,183,216 Total tax 183,743 185,744 Difference in tax 2,001 Informal offer 161 The Commissioner contends that offer 2 contained terms extraneous to the litigation, being essentially terms equivalent to those the subject of the Commissioner’s extraneous contentions in respect of offers 1A and 1B. The Commissioner contends that these extraneous terms could not have been included in a formal offer and should not be taken into account or should be given less weight. 162 For the reasons given above in respect of offers 1A and 1B, I do not accept the Commissioner’s contention that these terms could not have been included in a formal offer under the Supreme Court Civil Rules 2013 (SA) (or later under the Uniform Rules). 163 I do not consider that substantially less weight should be given to the offer to the extent that it addressed these matters. Genuine compromise 164 The Commissioner accepts that the offer involved a level of compromise. However, the Commissioner contends that the offer did not involve genuine compromise. 165 The Commissioner accepts that the offer entailed most employees being partially non-exempt, which involved compromise to the extent that, if entirely successful on appeal, all employees would have been fully exempt. However, the Commissioner refers to the fact that the offer would have left a non-exempt payroll -- 30 of 39 -- [2024] SASC 41 Blue J 29 of only $1,165,013 in the 2017 financial year, a non-exempt-payroll of only $1,153,722 in the 2018 financial year, a non-exempt-payroll of only $1,153,760 in the 2019 financial year and a non-exempt payroll below the $1.5 million threshold from 1 January 2019 onwards. The Commissioner contends that the offer involved an almost complete capitulation by the Commissioner. 166 I reject the Commissioner’s contention. Under the offer, substantial payroll tax would have been payable for the 2017 and 2018 financial years and the first half of the 2019 financial year. 167 In addition, for the same reasons as in respect of offer 1A, the question of genuine compromise cannot be assessed purely in terms of payroll tax dollars. The offer involved a substantial ongoing concession by Trinity (compared to complete success on appeal) that wages paid to most employees were partially non-exempt. Considered holistically, the offer did involve genuine compromise. 168 On the other hand, assessed in purely monetary terms, the offer involved a small discount compared to the position if Trinity were to succeed wholly on the appeal. This is to be taken into account in assessments of unreasonable non- acceptance and holistic consideration. Offeree better off 169 Assessed in a purely monetary sense, the Commissioner would have been marginally better off accepting offer 2 compared to the result under my judgment. 170 The Commissioner contends that she had no power to accept offer 2 because it involved percentages being applied to wages paid in respect of different areas based solely on an assessment of litigation risk as opposed to principle. Under the Act, wages paid to an employee are either exempt or non-exempt and the Commissioner only has power to issue assessments on the basis of exemption or non-exemption. 171 The parties do not cite any authorities on the scope of the Commissioner’s power to issue compromise assessments under section 13, or power of general administration under section 61, of the Administration Act. They cite three authorities in relation to the Federal Commissioner of Taxation’s power of general administration47 and one authority in relation to the power of the Chief Commissioner of State Revenue in New South Wales.48 172 In Macquarie Bank Ltd v Federal Commissioner of Taxation,49 Middleton, Pagone and Davies JJ said: 47 Grofam Pty Ltd v Federal Commissioner of Taxation (1997) 36 ATR 493; Macquarie Bank Ltd v Federal Commissioner of Taxation [2013] FCAFC 119; and Jonshagen v Commissioner of Taxation [2016] FCA 1545. 48 YMCA Australia v Chief Commissioner of State Revenue [2021] NSWSC 102. 49 [2013] FCAFC 119. -- 31 of 39 -- [2024] SASC 41 Blue J 30 The power of the general administration of tax legislation given to the Commissioner, by provisions like s 8 of the 1936 Act … does not permit the Commissioner to dispense with the operation of the law. The power of general administration in such provisions is not a discretion to modify, or which modifies, the liability to tax imposed by the statute: the power in such provision for general administration (coupled with whatever discretion they may contain) affects the administration of the Acts and not the Commissioner’s duty to act according to law and to assess taxpayers to the correct amount of liability imposed by the legislation. … That is not to say that he may not compromise the amount of any debt to be recovered upon an assessment or that he may not adopt a view of the law, or of its application, that may reasonably be open, or about which he may otherwise have some doubt… … Nothing in s 8, or in any like provision concerning the administration of the Act, permits the Commissioner to convert the liability imposed by the statute into one mediated through an unstated discretion.50 173 My understanding is that the Commissioner does not contend that she lacked power to issue compromise assessments in accordance with offers 1A, 1B or 3. I consider that she had such power. I consider that she also had power to compromise the amount of refund due in accordance with offer 1B. 174 I am disposed to consider that the Commissioner lacked power to issue assessments in accordance with offer 2 because such assessments could not have been issued on a principled basis but only by reference to an assessment of litigation risk. I am disposed to consider that in any event the Commissioner lacked power to make a determination for future years that exemptions would be granted in accordance with offer 2 because such a determination could not have been made on a principled basis. However, it is not necessary to decide these questions and it is undesirable to do so. I assume, in favour of Trinity, that the Commissioner had power to accept and act in accordance with offer 2. 175 If Trinity had succeeded on appeal to the same extent as its offer, it would have been entitled to refunds of payroll tax compared to the position under my judgment as set out in the table at [160] above. 176 As observed above, technically refunds of past tax paid are outside the scope of the litigation. However, they are directly consequential on the determination of the appeal. They should be taken into account in assessing the better off issue. 177 Accordingly, the Commissioner would have been marginally better off, in a monetary sense, under the terms of offer than she is under the judgment by the amount of $2,001. 178 However, for the reasons given above, the assessment of better off is not confined to a monetary or quantitative assessment alone. It also involves a qualitative assessment by reference to the identity of the employees whose wages are exempt or partially exempt from tax. 50 At [11], [12]. -- 32 of 39 -- [2024] SASC 41 Blue J 31 179 A qualitative assessment is difficult to make because, as observed above, the result of determination of the appeal would have been binary in respect of each employee: the wages paid to each employee would have been held to be either wholly exempt or wholly non-exempt. By contrast, the terms of the offer provided for most employees to be partially exempt. 180 Wages paid to employees in the following areas were held by me to be non- exempt but, under the terms of the offer, would have been wholly or partially exempt: • StarStore; • Creche; • Membership; • Promotions; • Reception; • Training; and • Management. 181 Wages paid to employees in the following areas were held by me to be exempt but, under the terms of the offer, would have been only partially exempt: • Fitness Centre; • Swim Centre; • Courts Centre; and • Theatre. 182 In qualitative terms, there is a very substantial difference between the result of the judgment and the terms of the offer. 183 It is not possible to give a binary yes or no answer to the better off question. It is necessary to treat the better off issue as a factor in the overall exercise of the discretion rather than as an essential element that is either satisfied or not satisfied. Unreasonable non-acceptance 184 The Commissioner contends that offer 2 was made at a relatively early stage of the proceeding and this is a major factor why it was not unreasonable not to accept the offer. -- 33 of 39 -- [2024] SASC 41 Blue J 32 185 For the reasons given in respect of offer 1B, I consider that the Commissioner was in a reasonable position to assess her prospects of success on the education exemption as at February 2020. On the other hand, I accept that some further relevant information was subsequently received by the Commissioner and also that at that early stage the Commissioner did not know precisely what further information might come to light. 186 My observations at [142] to [147] in respect of offer 1B apply equally to offer 2. 187 As observed above, the Commissioner contends that she would not have had power to issue assessments in accordance with offer 2 because the employees’ wages were either exempt or taxable. It is unnecessary to decide this question. I assume in favour of Trinity that the Commissioner did have power to act in accordance with offer 2. 188 The Commissioner adopted a principled approach in not accepting offer 2. This was based on the Commissioner’s own assessment of the proper construction of the relevant exemptions and the facts. Although the principles adopted by the Commissioner were ultimately held to be incorrect, nevertheless the Commissioner took a principled approach. 189 Unlike the position in respect of offer 1B, offer 2 was put on the basis of a commercial resolution and involved partial exemption based on litigation risk which could not have been an outcome on appeal and could not (other than I assume by consent) have been the subject of an assessment by the Commissioner under the Act. Such partial exemption under the terms of the offer would not only apply for past years but would apply indefinitely in respect of future years. This is a significant factor in determining whether the Commissioner unreasonably did not accept the offer. 190 I take into account all of the relevant factors as summarised above, including in particular the extent of the compromise offered, the differential and difficult analysis as to whether the Commissioner would have been better off accepting the offer and the matters referred to in this section. Taking into account all of those matters, it was not unreasonable for the Commissioner not to accept offer 1B. Holistic assessment 191 I take into account the other factors summarised above commonly identified as being relevant factors. Offer 2 was open for a reasonable time. It explained its rationale. It did not explicitly foreshadow a special costs order being sought but this was implicit from its statement that it was made in accordance with the Calderbank v Calderbank principles. 192 By reason particularly of the matters addressed under the previous three headings, it is not appropriate to exercise the discretion to order that Trinity recover -- 34 of 39 -- [2024] SASC 41 Blue J 33 costs on an indemnity basis by reason of the Commissioner’s non-acceptance of the offer. Offer 3 193 Trinity’s offer 3 was made on 3 August 2021. It contained a narrative developing on the narratives contained in offers 1A and 1B and offer 2. The structure of the offer was essentially the same as offer 1A coupled with a term that the Commissioner process refunds in accordance with the terms as to exempt and non-exempt wages. The central term was that amended assessments be issued exempting from the 2013 financial year onwards wages paid to Starplex employees except: • Management employees; • Training employees; • Court Centre employees; • Theatre employees; and • Promotions employees. 194 Set out below is a comparison between the offer and my judgment in terms of identity of staff (showing numbers and FTE): Area Exempt staff per offer and judgment Non-exempt staff per offer and judgment Exempt staff per offer but not judgment Exempt staff per judgment but not offer Swim Centre 46/15.72 Fitness Centre 37/8.62 Courts Centre 10/5.6 StarStore 4/2.45 Creche 6/1.77 Membership 5/2.51 Promotions 2/1.22 Reception 5/3.2 Training 1/0.64 Management 2/2 Theatre 3/0.22 195 Set out below is a comparison between the offer and my judgment in terms of wages and payroll tax payable in respect of the 2017 financial year: -- 35 of 39 -- [2024] SASC 41 Blue J 34 Area Wages per judgment Wages per offer Tax per judgment Tax per offer Swim Centre - - Fitness Centre - - Courts Centre - 344,026 StarStore 202,510 - Creche 148,992 - Membership 177,852 - Promotions 86,446 86,446 Reception 139,566 - Management & Training 418,698 418,698 Theatre - 86,801 Total 1,174,064 935,971 28,416 16,631 196 Set out below is a comparison between the offer and my judgment in terms of wages and payroll tax payable in respect of the 2013 to 2021 financial years: Year Wages per judgment Wages per offer Tax per judgment Tax per offer 2013 1,205,267 973,383 29,961 18,482 2014 1,114,713 891,034 25,478 14,406 2015 1,175,135 926,723 28,469 16,172 2016 1,191,015 980,961 29,255 18,858 2017 1,174,064 935,971 28,416 16,631 2018 1,159,561 901,911 27,698 14,945 2019 1,102,848 811,241 14,466 7,280 2020 1,303,854 1,016,776 0 0 2021 1,061,809 897,198 0 0 Total wages 10,488,266 8,335,198 Total tax 183,743 106,774 Difference in tax 76,969 Informal offer 197 The Commissioner contends that offer 3 contained terms extraneous to the litigation. The Commissioner contends that these extraneous terms could not have been included in a formal offer and in any event should not be taken into account or should be given less weight. 198 I reject the Commissioner’s contentions for the reasons given in respect of similar terms contained in offer 1A,1B and 2. 199 I do not consider that substantially less weight should be given to the offer to the extent that it addressed these matters. -- 36 of 39 -- [2024] SASC 41 Blue J 35 Genuine compromise 200 The Commissioner accepts that the offer involved a level of compromise but contends that this did not amount to genuine compromise. The Commissioner accepts that the offer entailed 20 employees being non-exempt, which involved compromise to the extent that, if entirely successful on appeal, all employees would have been exempt. However, the Commissioner refers to the fact that the offer would have left a non-exempt payroll of only $935,971 in the 2017 financial year, a non-exempt-payroll of only $901,911 in the 2018 financial year, a non- exempt-payroll of only $811,241 in the 2019 financial year and a non-exempt payroll below the $1.5 million threshold from 1 January 2019 onwards. The Commissioner contends that the offer involved an almost complete capitulation by the Commissioner. 201 I reject the Commissioner’s contention for the same reasons as in respect of offers 1A, 1B and 2. 202 On the other hand, assessed in purely monetary terms, the offer involved a relatively small discount compared to the position if Trinity were to succeed wholly on the appeal. This is to be taken into account in assessments of unreasonable non-acceptance and holistic consideration. Offeree better off 203 Trinity accepts that under the judgment the quantum of its payroll tax liability in respect of the 2017 to 2019 financial years is higher by $31,724 than it would have been if Offer 3 had been accepted. Under the judgment the quantum of its payroll tax liability in respect of the 2013 to 2021 financial years is higher by $76,969 than it would have been if Offer 3 had been accepted. However, Trinity contends that, if its legal costs incurred as at the date of the offer are taken into account, the Commissioner would have been better off accepting the offer. It does not attempt to quantify such legal costs. 204 As observed above, Trinity bears the onus of proof and persuasion. In the absence of evidence about the quantum of its costs incurred as at August 2021, there is no basis on which I could find that they would have exceeded the difference in payroll tax liability of $76,969. 205 In a purely monetary sense, the payroll tax payable by Trinity in respect of the financial years 2013 to 2021 under the judgment exceeds the amount that would have been payable under the offer. 206 In addition, under the judgment, employees in StarStore, Membership, Reception and Creche have been held not to be exempt but would have been exempt under the offer. For the reasons given above, it is not appropriate simply to offset the Courts Centre and Theatre employees (who I held are exempt but were not exempt under the offer) against the employees in StarStore, Reception, -- 37 of 39 -- [2024] SASC 41 Blue J 36 Membership and Creche. In any event the number (13 v 15) and full-time equivalent (5.82 v 6.73) of the latter employees exceeds the former. 207 Accordingly, Trinity has not demonstrated that the Commissioner would have been better off accepting the offer compared to under the judgment. Unreasonable non-acceptance 208 I concluded above that the Commissioner’s non-acceptance of offer 1B was not unreasonable. The terms of offer 1B were more favourable to the Commissioner than the terms of offer 3. For essentially the same reasons as in respect of offer 1B, it was not unreasonable for the Commissioner not to accept offer 3. 209 I accept that offer 3 was made approximately two years after offer 1B and that by August 2021 the Commissioner had received further information, including Mr Wenske’s first affidavit and Mr Martin’s second affidavit. This was a more advanced stage in the litigation. However, I have concluded above that the Commissioner was in a reasonable position to assess prospects of success as at December 2019. The advances in the litigation do not alter my conclusion in respect of reasonableness. Unreasonably not meeting 210 Offer 3 included a statement: If you wish to meet to further discuss any aspect of the foregoing, we are instructed to offer to do so. 211 Trinity’s solicitors’ letter dated 20 August 2021 included a statement: Once again, we suggest that if it would assist to meet to discuss a possible resolution of the matter, our client is willing to do so. 212 Trinity contends that the Commissioner had an overarching obligation under rule 3.1(1) of the Uniform Rules to cooperate and use reasonable endeavours to resolve the dispute. Trinity contends that the Commissioner unreasonably failed to meet to attempt to resolve the matter and by reason thereof a special costs order should be made. 213 Rule 3.1(1)(f) and (g) of the Uniform Rules provides: (1) A party or a person appearing or required to appear before the court must in relation to a proceeding or an appellate proceeding— … (f) cooperate with the other parties and with the court in relation to the conduct of the proceeding; -- 38 of 39 -- [2024] SASC 41 Blue J 37 (g) use reasonable endeavours to resolve, alternatively narrow the scope of, a dispute in or the subject of the seating by agreement; 214 The parties met to discuss a potential resolution in January 2020. They attended a court mediation in June 2020. 215 It may well be that a party would breach these rules if it failed to attend, or participate in good faith in, a court-ordered mediation or other court-ordered form of alternative dispute resolution. However, the mere fact that a party does not attend a meeting in response to an invitation from the other party does not entail a breach of these rules. 216 The letters from Trinity’s solicitors dated 3 August and 20 August 2021 merely expressed a willingness to meet if the Commissioner wished or if it would assist. They did not amount to a request to meet. They contained no suggestion that, if the Commissioner did not meet with them, the Commissioner would or might be in breach of the overarching obligations contained in the Uniform Rules; nor did any subsequent letter from Trinity’s solicitors make any such suggestion. 217 In the circumstances, there is no basis to find any breach by the Commissioner of the overarching obligations. 218 In any event, it is clear from the without prejudice save as to costs communications between the parties and from their positions in the litigation that they had quite differing views about Trinity’s entitlement to exemption from payroll tax in respect of Starplex employees. Even if there had been a further meeting between the parties, it is quite unlikely that it would have led to a resolution. Holistic assessment 219 I take into account the other factors summarised above commonly identified as being relevant factors. Offer 3 was open for a reasonable time (being the same 14 days as the Commissioner’s second offer). It could have been made as a formal offer but there was no specific detriment to the Commissioner by reason of its not being made as a formal offer. It explained its rationale. It did not explicitly foreshadow a special costs order being sought but this was implicit from its statement that it was made in accordance with the Calderbank v Calderbank principles. 220 By reason particularly of the matters addressed under the previous two headings, it is not appropriate to exercise the discretion to order that Trinity recover costs on an indemnity basis. Conclusion 221 Trinity’s application for an indemnity costs order must be dismissed. The Commissioner should pay Trinity’s costs of the appeal on the standard basis. I will hear the parties concerning the orders to be made. -- 39 of 39 --