Precise Training Pty Ltd v Chief Commissioner of State Revenue [2020] NSWSC 1202

Background

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.[1] 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.[2]

The issue

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.[3]

The Court’s decision to order security for costs involved two steps:

1. the Chief Commissioner had to prove that there was a ‘reason to believe’ that the corporate plaintiffs would be unable to pay the costs of the Chief Commissioner if successful in its defence (“threshold question”).[4]
2. whether, as a matter of discretion, it should make an order for security for costs (“discretionary question”).[5]

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.

Submissions

The plaintiffs submitted that the Court should not make an order for security for costs for two reasons:

1. the proceedings, being review proceedings, were defensive in nature.[6]
2. there was significant delay by the Chief Commissioner in making the application for security.[7]

The plaintiffs did not submit that an order for security for costs would stultify the proceedings.[8] 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.[9]

The Chief Commissioner submitted that the proceedings were not defensive in nature because:

1. the parties are not bound by the original grounds of objection in this type of review proceedings,
2. the plaintiffs have the onus of proving their case on review,
3. the plaintiffs could have commenced proceedings in the NSW Civil and Administrative Tribunal, which is ordinarily a no-costs jurisdiction, and
4. the plaintiffs’ need to commence proceedings arose from their own conduct in failing to provide the Chief Commissioner with information and documents during the investigation of the plaintiffs’ payroll tax liability, which therefore resulted in estimate tax assessments being issued.[10]

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.[11] Id in any event the plaintiffs had not been prejudiced by the Chief Commissioner’s circumstances,[12] and in any event the plaintiffs had not been prejudiced by the Chief Commissioner’s delay in making the application.[13] 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.[14]

Decision

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.[15] 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.[16]

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.[17] 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.[18] In light of the delay, the Court exercised the discretion to order security for future costs only.

Orders

The Court made the following orders:[19]

1. Order the first to fifth plaintiffs to provide security for the Chief Commissioner’s costs in the amount of $199,900 in the following tranches:
   1. the first tranche of $99,950 within 28 days after the date of this order; and

      with such security to be provided by payment into court.

   2. the second tranche of $99,950 on or before 1 February 2021,
   3. Order that the proceedings be stayed if security is not provided in accordance with Order 1 above.
   4. Order that the first to fifth plaintiffs pay the Chief Commissioner’s costs of the notice of motion filed on 22 May 2020 in an amount agreed or assessed.

https://www.caselaw.nsw.gov.au/decision/1745774bf4ea234fc884953e

Footnotes

1. ^ Paragraph 32.
2. ^ Paragraphs 5, 42 and 45.
3. ^ Paragraphs 5 and 47.
4. ^ Paragraph 51.
5. ^ Paragraph 53.
6. ^ Paragraphs 8 and 56.
7. ^ Paragraphs 8 and 56.
8. ^ Paragraph 9.
9. ^ Paragraph 12.
10. ^ Paragraph 61.
11. ^ Paragraph 10.
12. ^ Paragraph 10.
13. ^ Paragraph 10.
14. ^ Paragraph 11.
15. ^ Paragraph 65.
16. ^ Paragraph 68.
17. ^ Paragraph 80.
18. ^ Paragraph 81.
19. ^ Paragraph 102.