On 19 January 2024, the Federal Court handed down judgment in favour of the Commissioner of Taxation, awarding indemnity costs in a lump sum. See Commissioner of Taxation v Rawson Finances Pty Ltd (Costs) [2024] FCA 19.
In the current proceeding (cost proceeding), our client sought indemnity costs for the proceedings where he was successful in setting aside the judgment of the Full Federal Court in Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26 on the basis that the judgment was procured by fraud. See Commissioner of Taxation v Rawson Finances Pty Ltd [2023] FCA 617 (set aside proceedings). MinterEllison successfully represented the Commissioner in both matters.
This is a first matter of this kind where indemnity costs were granted to the Commissioner on the ground of public interest. The Court held that the Commissioner should be awarded indemnity costs for the set aside proceeding, fixed in a lump sum amount as well as costs of the costs proceedings on a party/party basis.
Summary of Perry J's decision on costs
The Commissioner was successful in obtaining indemnity costs on the basis that the Commissioner was acting in the public interest in seeking to set aside the judgment which was procured by fraud. Relevantly, the Court noted that the Commissioner should bear no part of its expenses in setting aside a judgment where the public interest is heightened by the seriousness of the fraud perpetrated upon both the Commissioner and the Full Court.
While not strictly necessary to address, her Honour held that an order for indemnity costs could also be justified based on an alternate ground, Rawson's conduct. The Court held that indemnity costs could be awarded on that ground, but only on and from 27 August 2020. On this date, Rawson filed written submissions in which it partially admitted its fraudulent conduct but nonetheless positively put forward a knowingly false case.
Her Honour was satisfied that a lump sum costs order was appropriate. The quantum of costs sought by the Commissioner was not put into issue by Rawson.
Key general principles noted by the Court on costs
Indemnity costs
In reaching its decision, the Court outlined the following general principles:
- The general rule is that a party is entitled to costs on a party/party basis only. However, a court may depart from this general rule where there is "some special or unusual feature in the case" that justifies doing so.
- The categories for such cases are not closed and it will always depend on the facts and circumstances of the case.
- Indemnity costs are awarded to indemnify a successful party in litigation, and not as a means of punishment.
- Allowing judgments obtained by fraud to stand would undermine public confidence in the judiciary. Accordingly, litigation to set aside such a judgment serves an important public interest.
Lump sum costs
In reaching its decision, the Court outlined the following general principles:
- The discretion to order costs as a lump sum must be exercised judicially and only after providing the parties with an adequate opportunity to make submissions.
- Whilst the Court retains a broad discretion to award costs orders, it is the preference of the Federal Court to avoid potentially expensive and lengthy taxation costs hearings and to utilise lump-sum costs.
- The lump-sum can only be fixed broadly having regard to the information before the court; it is not the result of a process of assessment of costs.
- The approach taken to estimate costs to be ordered must be logical, fair and reasonable.
Please contact us if you have further inquiries or require legal assistance related to indemnity costs and lump sum costs, as highlighted in the recent Federal Court decision.