Chief Commissioner of State Revenue v E Group Security Pty Ltd (No 3) [2023] NSWCA 63
In the recent decision of Chief Commissioner of State Revenue v E Group Security Pty Ltd (No 3) the Court of Appeal in the Supreme Court of New South Wales considered a scenario where a dispute arose about how much tax a company should have to pay, what constitutes an unreasonable offer and when it is ok to reject an offer.
The dispute related to the plaintiff’s alleged status as an employment agent.
As the matter progressed the plaintiff made a partial payment in respect of the claimed tax debt and litigation was commenced.
In January 2021, the defendant made a Calderbank offer (and not a UCPR offer) to accept about $3.4m for its claim (when it alleged $5.2m was owed).
The matter did not settle.
In the end, in February 2023 the plaintiff was ordered to pay $4.2m.
The plaintiff enjoyed partial success at first instance. Due to the plaintiff’s partial success, at first instance the defendant was ordered to pay 50% of the plaintiff’s legal costs.
The defendant appealed including seeking to displace its costs obligation.
The defendant said that if the January 2021 offer had been accepted the plaintiff would have been $800K better off, so rejecting that offer was unreasonable.
The defendant further said the plaintiff was unreasonable in not accepting the offer because it was made 3 weeks before the first instance hearing, it was open for 14 days, it involved a compromise of $1.8m, it was clear, an indemnity costs order was flagged, and the plaintiff had all the evidence needed to assess its position.
Reasonableness is to be assessed at the date the offer is made, not with hindsight.
The plaintiff said a significant amount of the final sum it was ordered to pay was interest accruing due to matters outside its control including the defendant’s conduct by appealing on the last possible day and amending its appeal grounds, and the appeal being partly heard with a subsequent 3 month delay for a second hearing day.
The Court accepted the offer was not a compromise in primary tax, only interest – and that interest was largely due to the defendant’s conduct of the appeal including raising of new grounds.
Considering the reasonableness of the plaintiff’s response to the offer should bear in mind each party’s exposure regarding interest i.e. while the defendant might be owed interest if it won, the plaintiff might have been owed interest on its pre-payment if it had won.
The defendant eventually won on appeal, but that victory was attributable to a point not given much attention at first instance, and not mentioned in the offer.
It was not unreasonable for the plaintiff not to accept the offer. The existing cost order was appropriate. The defendant should pay the plaintiff’s costs of the application to vary the costs orders.
This case illustrated the importance of what constitutes a reasonable offer and when it is ok to refuse an unreasonable one. If you would like advice in relation to drafting appropriate settlement letters and calderbank offers of compromise, please do not hesitate to reach out to our team.
This article was prepared with the assistance of Christie Preston.
If you have any questions or concerns please contact Director Stipe Vuleta on 02 6188 3600