|Date of judgement||4 September 2020|
|Court or Tribunal||Supreme Court of New South Wales|
Chocron v Onkoud  NSWSC 1205
Commissioner of Taxation v Vasiliades (2016) 344 ALR 558;  FCAFC 170
Cornelius v Global Medical Solutions Australia Pty Ltd (2014) 98 ACSR 301;  NSWCA 65
Modakboard Australia Pty Ltd v Matthew Howard Brady  NSWSC 399
Oswal v Commissioner of Taxation (No 2)  FCA 1143
PPK Willoughby Pty Ltd v Baird  NSWCA 48
Re Colorado Products Pty Ltd (in prov liq)  NSWSC 611
B & L Linings Pty Ltd v Chief Commissioner of State Revenue  NSWCA 187, (2008) 74 NSWLR 481
Brown Cavallo Pty Ltd v Chief Commissioner of State Revenue  NSWCATAD 18
Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD)  NSWADTAP 25
Gaskell v Denkas Building Services Pty Limited  NSWCA 35
Jones v Dunkel (1959) 101 CLR 298
Leda Manorstead v Chief Commissioner of State Revenue  NSWSC 867
Longford Investments Pty Ltd v Commissioner of Land Tax (NSW) (1978) 8 ATR 656
Manly Council v Byrne  NSWCA 123
McIntosh Bros Pty Ltd (In Liq) v Chief Commissioner of State Revenue  NSWCATAD 124
On 3 December 2019, the Chief Commissioner wrote to the plaintiffs expressing concern about the plaintiffs’ ability to meet an adverse costs order if they were unsuccessful in the proceedings. This letter indicated that the Chief Commissioner was considering making an application for security for costs. Between January and February 2020, the plaintiffs and the Chief Commissioner engaged in correspondence regarding the financial position of the plaintiffs. On 22 May 2020 the Chief Commissioner filed a notice of motion seeking security for costs.
The relevant issue was whether the Court should exercise its discretion to make an order for security for costs pursuant to r. 42.21 of the Uniform Civil Procedure Rules 2005 (NSW), s. 1335 of the Corporations Act 2001 (Cth) and/or the inherent jurisdiction of the Court.
The Court’s decision to order security for costs involved two steps:
The parties agreed that the threshold question was satisfied as there was reason to believe that the plaintiffs would be unable to pay the Chief Commissioner’s costs if so ordered.
The discretionary question was the subject of the dispute.
The plaintiffs submitted that the Court should not make an order for security for costs for two reasons:
The plaintiffs did not submit that an order for security for costs would stultify the proceedings. Regarding the amount of costs, the plaintiff submitted that if an order is made, costs should be limited to the Chief Commissioner’s future costs and that the costs should be less than the amount sought by the Chief Commissioner.
The Chief Commissioner submitted that the proceedings were not defensive in nature because:
The Chief Commissioner also submitted that whilst there was some delay in making the application for security, the application was nevertheless made reasonably promptly in all the circumstances. Id in any event the plaintiffs had not been prejudiced by the Chief Commissioner’s circumstances, and in any event the plaintiffs had not been prejudiced by the Chief Commissioner’s delay in making the application. In respect of the quantum of security sought, the Chief Commissioner submitted that the order should require the plaintiffs to pay security for the Chief Commissioner’s past and future costs.
The Court was of the opinion that the proceedings had a defensive element, as the plaintiffs were seeking to defend themselves against the tax debt by attacking the manner in which the Chief Commissioner discharged his statutory functions and the outcome of the assessments, but that it would be inaccurate to treat the plaintiffs as being, in substance, in the position of a Chief Commissioner for the purpose of determining the security for costs application. Whilst the defensive element of the proceedings was not determinative of the exercise of the discretion whether to order security for costs, it was relevant to the discretion. The Court considered the fact that the plaintiffs could have commenced their review proceedings in the NSW Civil and Administrative Tribunal, ordinarily a no-costs jurisdiction, to be a neutral factor.
On the issue of delay, the Court found that while there had been a significant delay in making the application, from the plaintiffs’ evidence and submissions there was no reason to believe that the proceedings would be stultified if they were ordered to pay security for costs, and that to the contrary, they were more likely to find a source of funds to meet an order rather than abandon the proceedings. The Court held that the making of an order for security at a relatively late stage in the proceedings would not cause unfairness or prejudice to the plaintiffs, and so the delay was not a significant factor in the exercise of the discretion in all the circumstances of this case. In light of the delay, the Court exercised the discretion to order security for future costs only.
The Court made the following orders:
with such security to be provided by payment into court.