Can Barz Pty Ltd & Anor v Commissioner of State Revenue & Ors (No 2); Scott and Bird & Ors v Commissioner of State Revenue (No 2) [2016] QSC 181

SUPREME COURT OF QUEENSLAND CITATION: Can Barz Pty Ltd & Anor v Commissioner of State Revenue & Ors (No 2); Scott and Bird & Ors v Commissioner of State Revenue (No 2) [2016] QSC 181 PARTIES: In SC No 8965 of 2015: CAN BARZ PTY LTD AS CUSTODIAN OF THE DECLARATION OF CUSTODY TRUST FOR THE MEWCASTLE SUPERANNUATION FUND (first applicant) CHERYL BIRD and STEVEN SCOTT AS TRUSTEES OF THE MEWCASTLE SUPERANNUATION FUND (second applicants) v COMMISSIONER OF STATE REVENUE (first respondent) REBECCA WARREN and ROBERT BOYD WARREN (second respondents) EB SALES PTY LTD (third respondent) ATTORNEY-GENERAL OF QUEENSLAND (intervenor) In SC No 9889 of 2015: CHERYL BIRD and STEVEN SCOTT AS TRUSTEES OF THE MEWCASTLE SUPERANNUATION FUND (first applicants) CAN BARZ PTY LTD AS CUSTODIAN OF THE DECLARATION OF CUSTODY TRUST FOR THE MEWCASTLE SUPERANNUATION FUND (second applicant) CAN BARZ PTY LTD AS CUSTODIAN OF THE DECLARATION OF CUSTODY TRUST NO 2 FOR THE MEWCASTLE SUPERANNUATION FUND (third applicant) v COMMISSIONER OF STATE REVENUE (respondent) FILE NO/S: SC No 8965 of 2015 SC No 9889 of 2015 DIVISION: Trial Division PROCEEDING: Applications for costs -- 1 of 9 -- 2 DELIVERED ON: 15 August 2016 DELIVERED AT: Brisbane HEARING DATE: Heard on the papers JUDGE: Bond J ORDER: In SC No 8965 of 2015: The order of the Court is that the first respondent pay the applicants’ costs of the proceeding. In SC No 9889 of 2015: The order of the Court is that the applicants pay the respondent’s costs of the proceeding. CATCHWORDS: PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS – OFFER OF COMPROMISE OR OFFER TO SETTLE OR CONSENT TO JUDGMENT – WHAT CONSTITUTES VALID OFFER PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS – INFORMAL OFFERS AND CALDERBANK LETTERS PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – DEPRIVING SUCCESSFUL PARTY OF COSTS – NATURE OF PROCEEDING – PUBLIC INTEREST OR DUTY Judicial Review Act 1991 (Qld), s 49 Uniform Civil Procedure Rules 1999 (Qld), Chapter 9 Part 5 2040 Logan Road Pty Ltd v Body Corporate for Paddington Mews CTS 39149 [2016] QSC 65, cited Can Barz Pty Ltd & Anor v Commissioner of State Revenue & Ors [2016] QSC 59, cited Scott and Bird & Ors v Commissioner of State Revenue [2016] QSC 132, cited COUNSEL: In SC No 8965 of 2015: P G Bickford for the applicants J M Horton QC, with T Pincus, for the first respondent In SC No 9889 of 2015: P G Bickford for the applicants J M Horton QC, with T Pincus, for the respondent -- 2 of 9 -- 3 SOLICITORS: In SC No 8965 of 2015: Bourke Legal for the applicants Crown Law for the first respondent In SC No 9889 of 2015: Bourke Legal for the applicants Crown Law for the respondent Introduction [1] Proceedings 8965 of 2015 (“the garnishee notices proceeding”) and 9889 of 2015 (“the judicial review proceeding”) were heard before me on 3, 4 and 5 February 2016. [2] In the garnishee notices proceeding, the applicants sought declaratory relief as to the invalidity of the garnishee notices purportedly issued by the Commissioner pursuant to s 50 of the Taxation Administration Act 2001 (Qld) with a view to making a partial recovery in respect of amounts which the applicants were liable to pay the Commissioner pursuant to the Payroll Tax Act 1971 (Qld). My judgment declaring the garnishee notices invalid was published on 21 March 20161. [3] In the judicial review proceeding the applicants sought judicial review of a decision which had been made under the Payroll Tax Act 1971 (Qld), which had the effect that the applicants continued to be liable for payroll tax because they continued to be regarded as members of a group and therefore rendered liable for tax to which other group members were liable. My judgment rejecting the application for judicial review was published on 13 June 20162. [4] Further detail concerning the subject matter of the two proceedings was identified in the second judgment in these terms (citations omitted): [1] By deed made on 31 January 2002 (which was varied by deed on 12 October 2011), the first applicants, Ms Bird and Mr Scott, became trustees of the Mewcastle Superannuation Fund (“the Fund”), which was a self-managed superannuation fund as defined by s 17A of the Superannuation Industry (Supervision) Act 1993 (Cth). It was a fund established for the sole purpose of providing retirement benefits for its members or to their dependents if a member died before retirement. Ms Bird and Mr Scott were the original members of the Fund. [2] Can Barz Pty Ltd was incorporated in Queensland pursuant to the Corporations Act 2001 (Cth) on 18 June 2009 and Ms Bird was (and is) its sole director and secretary. Relevantly, it acted in two custodian trust capacities, because it held two separate properties pursuant to two separate custody trusts, in each case on trust for Ms Bird and Mr Scott as trustees of the Fund. [3] On 16 April 2015, the Commissioner of State Revenue (by an appropriate delegate) advised Ms Bird, Mr Scott and Can Barz that they and a number of other natural and corporate persons were regarded as grouped together as part of the “Mewcastle group” under the grouping provisions of the Payroll Tax Act 1971 (Qld) (“the Act”). It subsequently became clear that the delegate regarded each person to be carrying on a “business” within the meaning of the Act for which Mr Scott and Ms Bird held a “controlling interest” within the meaning of the Act. [4] At the same time, the Commissioner issued assessment notices to two corporate members of the Mewcastle group, namely Mewcastle Pty Ltd and Mewcastle Internal Linings Queensland Pty Ltd. 1 See, Can Barz Pty Ltd & Anor v Commissioner of State Revenue & Ors [2016] QSC 59. 2 See, Scott and Bird & Ors v Commissioner of State Revenue [2016] QSC 132. -- 3 of 9 -- 4 Excluding penalty and interest, the assessments were to amounts of primary tax totalling in excess of $2.6 million. [5] One consequence of a number of legal persons being grouped together under the Act is that if a group member fails to pay tax to which the member is assessed, all the members of the group are rendered jointly and severally liable for the unpaid amount: s 51A of the Act. [6] In the present case, the assessed amounts have not been paid and, accordingly, all the members of the group, including Ms Bird, Mr Scott and Can Barz, are jointly and severally liable for the unpaid amounts. [7] On 16 June 2015, Ms Bird, Mr Scott and Can Barz sought an order under s 74 of the Act that they be excluded from the group. An exclusion order made pursuant to s 74 would have had the consequence that they would not have been liable for the unpaid tax assessments. On 10 September 2015, the Commissioner's delegate communicated his decision refusing to exclude them from the group. [8] In the meantime the Commissioner had taken steps to obtain some payment in respect of the alleged tax liability by serving garnishee notices in respect of monies which would become payable to Ms Bird, Mr Scott and Can Barz in various ways in the event that a sale transaction in respect of one of the properties held by Can Barz as custodian trustee settled as expected. The applicants had advised the Commissioner that in their view, even if they were not excluded from the group, the garnishee notices could not be valid and effective and flagged an application to Court for an order establishing that contention. [9] Prior to settlement of the conveyancing transaction, the Commissioner by her solicitors indicated that if it were held that the notices did not require the garnishee to pay an amount to the Commissioner, she would repay the amount to the applicants or as the Court directed. The result was that at settlement on 16 September 2015, a mortgagee was paid out; the usual conveyancing expenses were met; and a balance of about $250,000 was paid to the Commissioner. [5] The issues for present determination are the costs orders which should be made in each proceeding. I have received written submissions from the relevant parties with a view to determining the issues on the papers. Costs of the garnishee notices proceeding [6] On the basis that costs should follow the event, the Commissioner did not resist an order that the Commissioner should pay the applicants’ costs of the proceeding. [7] However, the applicants seek a more favourable costs order, namely that the Commissioner should be required to pay their costs, assessed on the indemnity basis. They submit that – (a) having regard to offers to settle which were made pursuant under Chapter 9 Part 5 of the UCPR, the Court is obliged to make such an order by operation of r 360 of the UCPR; or (b) if r 360 is not engaged, the offers can be regarded as Calderbank offers and the imprudent refusal of such offers justifies the exercise of discretion to make such an order. [8] It is appropriate to identify the facts revealed by the evidence and then to consider each of those submissions. The relevant chronology of events [9] Before 7 September 2015, the Commissioner issued garnishee notices in respect of monies which would become payable in the event that a real estate conveyancing transaction settled as expected. -- 4 of 9 -- 5 [10] On 7 September 2015 the proceeding was commenced by originating application seeking declaratory relief that the garnishee notices were invalid and ineffective and also declarations in respect of the beneficial ownership of the real estate and the beneficial entitlement to the monies from the conveyancing transaction. [11] On 11 September 2015 the originating application was amended to add some further detail. [12] On 16 September 2015, the conveyancing transaction settled; a mortgagee was paid out; the usual conveyancing expenses were met; and a balance of about $250,000 was paid to the Commissioner. (As indicated in the quote at [4] above, prior to settlement the Commissioner, by her solicitors, had indicated that if it were held that the notice did not require the garnishee to pay an amount to the Commissioner, she would repay the amount to the applicants or as the Court directed.) [13] On 17 September 2015 an offer to settle was made containing the following terms: (a) the Commissioner withdraw the impugned garnishee notices; (b) the applicants pay the Commissioner $2000; (c) the parties each bear responsibility for their own costs in the proceeding to the date of the offer; and (d) the proceeding be discontinued. (e) The offer was open for acceptance for 14 days from the date of service. [14] The offer was not accepted. On 2 October 2015 the Commissioner’s solicitors sought clarification as to whether the intention of the offer was that upon withdrawal of the notices the sum paid to the Commissioner would be reimbursed to the applicants. [15] On 2 October 2015 a further offer to settle was made containing the following terms: (a) the Commissioner withdraw the impugned garnishee notices; (b) the applicants pay the Commissioner $2000; (c) the parties each bear responsibility for their own costs in the proceeding to the date of the offer; (d) the Commissioner return the monies which she held consequent upon the settlement of the conveyancing transaction; and (e) the proceeding be discontinued. (f) The offer was open for acceptance for 14 days from the date of service. [16] The offer was not accepted within time. [17] On 7 December 2015 an informal offer to settle both proceedings was made. [18] On 22 December 2015, the offer of 7 December 2015 was rejected. Are the applicants entitled to an indemnity costs order pursuant to r 360? [19] This was a proceeding started by originating application. Pursuant to UCPR r 352, such a proceeding is to be regarded as a “proceeding” for the purposes of Chapter 9 Part 5 “… if an -- 5 of 9 -- 6 order or direction has been made for pleadings, or other documents defining the issues, to be filed and served.” The evidence on which the applicants relied in support of its application for an indemnity costs order does not reveal that such an order or direction has been made. [20] It follows that the applicants have not demonstrated that the proceeding was a proceeding to which Chapter 9 Part 5 applied. Accordingly, it is not necessary further to consider their submission that the provisions of Chapter 9 Part 5 are engaged. Even if they had been engaged, I would have exercised my discretion against the making of such an order for the reasons identified under the next heading. Are the applicants entitled to such an order in the exercise of the Court’s discretion? [21] It is clear that the imprudent refusal of an informal offer to settle may in appropriate circumstances justify the making of an indemnity costs order. A recent and sufficient summary of general principle is to be found in the decision of Burns J in 2040 Logan Road Pty Ltd v Body Corporate for Paddington Mews CTS 39149 [2016] QSC 65 at [5] to [6] (citations omitted): [5] Where an offer to compromise a proceeding in terms more favourable than the eventual outcome has been made and refused, the following statement of principle from the Court of Appeal in J & D Rigging Pty Ltd v Agripower Australia Ltd will be apposite: “The failure to accept a Calderbank offer is a matter to which a court should have regard when considering whether to order indemnity costs. The refusal of an offer to compromise does not warrant the exercise of the discretion to award indemnity costs. The critical question is whether the rejection of the offer was unreasonable in the circumstances. The party seeking costs on an indemnity basis must show that the party acted ‘unreasonably or imprudently’ in not accepting the Calderbank offer.” [6] In considering whether the rejection of a Calderbank offer was unreasonable or imprudent, the court should ordinarily have regard to the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree’s prospects of success, assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether an application for indemnity costs was foreshadowed in the event that the offeree rejected the offer. [22] In this case: (a) The offers were made after the garnishee notices had already been complied with and monies paid to the Commissioner. It was not unreasonable for the Commissioner to reject an offer, acceptance of which would have required her to “withdraw” such notices after they no longer had legal effect. (b) In substance the offers were properly to be regarded as requiring the Commissioner’s virtual complete capitulation. I do not evaluate the $2000 term or the offer to forgo costs incurred to the date of the offer as negating that proposition. (c) The Commissioner had formed a view that the proper construction of s 50 authorised her to issue a notice to a garnishee in respect of monies which the garnishee was liable to pay a taxpayer, even though the Commissioner knew that the taxpayer’s right to receive payment was not beneficially held by the taxpayer. That was a view which I rejected. But it was a view on which there was no Queensland authority and it was a view which was reasonably arguable. Having formed that view, it was not unreasonable for the Commissioner to reject the offers concerned. -- 6 of 9 -- 7 [23] I do not consider that the applicants have demonstrated that the Commissioner’s rejection of the offers of 17 September 2015 and 2 October 2015 were unreasonable or imprudent in the circumstances. Conclusion [24] For the reasons expressed above, I reject the submission that the Commissioner should be required to pay the applicants’ costs, assessed on the indemnity basis. [25] Accordingly, I order the first respondent to pay the applicants’ costs of the proceeding. Costs of the judicial review application [26] On the basis that costs should follow the event, the Commissioner sought an order that the applicants should pay her costs of the proceeding. [27] The applicants submitted, first, that any costs order in favour of the Commissioner should exclude from the assessment the costs of and incidental to the filing of material and advancing of argument by the Commissioner’s Counsel with respect to the Wilson/Voll Group. [28] This was a reference to the matter I dealt with in my reasons for judgment at [31]: [31] It remains to note that the decision did not deal in any respect with the fact that, in addition to their application for an exclusion order in respect of the Mewcastle group, the applicants had also applied for an exclusion order in respect of their inclusion in another group, referred to as the Wilson/Voll Group. I make the following observations: (a) The application for an exclusion order dealt with two groupings of which the applicants had been notified, namely the grouping in respect of the Mewcastle group and the grouping in respect of the Wilson/Voll Group. (b) However the application only contained supporting material in respect of the application for an exclusion order in respect of the Mewcastle group. The application merely asserted that “if the [applicants are] excluded from the Mewcastle Group, then there can be no basis upon which the [applicants] can be included within the Wilson/Voll Group”. (c) The Commissioner’s delegate did not in fact make a decision on the application for an exclusion order in respect of the Wilson/Voll Group. In his affidavit, he explained that he took the view that, as no information was provided by the applicants, he was not able to consider the question. Unfortunately he had not otherwise communicated to the applicants that he had any difficulty with the application in so far as it pertained to the Wilson/Voll Group or that he required them to provide him with substantive information before he could decide the application. (d) During the course of argument it became clear that the Commissioner would not oppose the only remedy which the applicants sought from the Court in relation to this aspect of their application, namely a direction by the Court that the Commissioner proceed to decide the application for an exclusion order in respect of the Wilson/Voll group. Accordingly, it is not necessary further to consider that part of the applicants’ complaint. [29] The Commissioner submitted, and I agree, that insofar as the applicants should be considered as having any success at all in this issue, it should be regarded as de minimis. Given the -- 7 of 9 -- 8 nature of and relevant insignificance of the issue, I reject the applicants’ contention that any costs order in favour of the Commissioner should be modified in the way sought. [30] The applicants’ principal contention, however, was that I should exercise my discretion pursuant to s 49(1)(e) of the Judicial Review Act 1991 (Qld) to order that the applicants bear only their own costs of the proceedings and that there be no order as to costs in favour of the Commissioner. [31] In this regard, s 49(2) of the Act provides: (2) In considering the costs application, the court is to have regard to— (a) the financial resources of— (i) the relevant applicant; or … (b) whether the proceeding involves an issue that affects, or may affect, the public interest, in addition to any personal right or interest of the relevant applicant; and (c) if the relevant applicant is a person mentioned in subsection (1)(a)—whether the proceeding discloses a reasonable basis for the review application; and [32] As to the financial resources of the applicants: (a) Whilst I am prepared to infer that Can Barz has no significant assets, I am not prepared to make that conclusion in relation to the applicants. (b) I have been informed by reference to material not read before me that the two natural person applicants are undischarged bankrupts. But even if that is so, and they are liable to be removed as trustees, no argument has been addressed as to– (i) the nature of their right of indemnity as trustees and whether it might extend to cover any liability pursuant to a costs order; (ii) the worth of their being members of the Fund and the circumstances in which they might eventually expect to have some access to benefits from the Fund; or (iii) the impact of their bankruptcy on either of the previous matters. (c) Absent material or argument addressing those matters, I am not inclined to regard this consideration as a reason not to make a costs order against the applicants. [33] As to whether the proceeding involves an issue that affects, or may affect, the public interest, in addition to any personal right or interest of the relevant applicant: (a) The applicants submit that there was a substantial public interest in their pursuit of the judicial review application. (b) I reject that proposition. I agree with the Commissioner’s submission that there was no broader public interest in this proceeding and it could not be considered a test case which resolved any particular controversy on questions of principle. [34] On the question whether the proceeding disclosed a reasonable basis for the review application, I think that my reasons for judgment make clear that I formed a negative view -- 8 of 9 -- 9 of the application. It did not become reasonable because the applicants expressed lengthy arguments and there was no application made to strike out the application. [35] I decline to exercise my discretion in the way which the applicants seek. [36] Accordingly, I order the applicants to pay the respondent’s costs of the proceeding. -- 9 of 9 --