Judgment summary
This is a costs judgment following the substantive decision in Shell Energy Holdings Australia Limited v Commissioner of Taxation [2026] FCA 577, in which Jackman J found in favour of SEHAL and determined that the market value of each share in the WPL Shareholding on 20 January 1997 was $11.12 (at [105] of the earlier judgment).
SEHAL sought an order that the Commissioner pay its costs on a party and party basis before 11.00 am on 9 February 2026, and on an indemnity basis thereafter, relying on an offer of compromise it had served on the Commissioner on 5 February 2026 pursuant to r 25.01 of the Federal Court Rules 2011 (Cth) (paras [2]-[4]).
The Court held that r 25.14(3) of the Rules was enlivened because the offer was not accepted and the judgment obtained by SEHAL was more favourable than the offer, which had proposed a share value of $10.82 compared with the $11.12 found by the Court (para [4]).
The Court rejected both of the Commissioner's arguments against the presumptive indemnity costs order and made the order sought by SEHAL (paras [5]-[8]).
Background
In the substantive proceeding, Shell Energy Holdings Australia Limited v Commissioner of Taxation [2026] FCA 577, Jackman J found in favour of SEHAL and expressed a preliminary view that the Commissioner should pay SEHAL's costs (at [107] of that judgment) (para [1]).
In that earlier judgment, the Court found that the appropriate premium was 18% over the closing market price on 20 January 1997, yielding a market value for each share that day of $11.12 (at [105] of that judgment) (para [1]).
A timetable was set for affidavits and written submissions on costs, and SEHAL was noted as potentially wishing to seek a special order for costs (para [1]).
On 5 February 2026, SEHAL served a Notice of Offer to Compromise, in accordance with Form 45, on the Commissioner pursuant to r 25.01 of the Federal Court Rules 2011 (Cth). The offer proposed a share value of $10.82. The Commissioner did not accept the offer (para [4]).
Core dispute
SEHAL contended that, because the Commissioner rejected its offer of compromise, the Court should order the Commissioner to pay SEHAL's costs on a party and party basis before 11.00 am on 9 February 2026, and on an indemnity basis thereafter, pursuant to r 25.14(3) of the Federal Court Rules 2011 (Cth) (paras [2]-[3]).
The Commissioner opposed the presumptive indemnity costs entitlement on two grounds. First, that the offer required, in substance, close to capitulation by the Commissioner and was not a substantial compromise by SEHAL. Second, that the dispute raised an important question about the construction of s 160ZZSC of the Income Tax Assessment Act 1936 (Cth), such that the case fell within the category of disputes involving important points of law that tend to displace the presumptive costs position (paras [5]-[6]).
Court findings
The Court found that r 25.14(3) of the Federal Court Rules 2011 (Cth) was enlivened, because SEHAL made an offer on 5 February 2026 which was not accepted by the Commissioner, and SEHAL obtained a judgment more favourable than the offer, the Court having found the market value of each share to be $11.12 rather than the $10.82 figure in the offer. This gave SEHAL a presumptive entitlement to indemnity costs from the second business day after the offer was served, being 9 February 2026, applying Wu v Chu [2025] FCAFC 155; (2025) 312 FCR 89 at [9] and [28] (para [4]).
The Court rejected the Commissioner's submission that the offer amounted to near capitulation rather than a substantial compromise. The Court noted that, on the Commissioner's own submissions, the offer by SEHAL involved SEHAL having to pay additional income tax of just over $17 million, which represented more than 15% of the amount of tax at stake in the proceedings, and constituted a substantial compromise by SEHAL (para [5]).
The Court also rejected the Commissioner's submission concerning the importance of the point of law at issue, namely the construction of s 160ZZSC of the Income Tax Assessment Act 1936 (Cth), citing Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118 at [19] and [27]. The Court found that the dispute concerned the application of a transitional provision in the old CGT law which, absent evidence to the contrary, appeared to have little ongoing significance to the Commissioner or the tax community. The Commissioner had not relied on any evidence to establish the importance of the issues concerning the construction of s 160ZZSC and the approach to valuing shares for that provision (para [6]).
Outcome
The Court ordered that the Commissioner pay SEHAL's costs of the proceedings on a party and party basis before 11.00 am on 9 February 2026, and on an indemnity basis after 11.00 am on 9 February 2026 (Orders; para [7]).
Major issues / areas of contention
- Whether r 25.14(3) of the Federal Court Rules 2011 (Cth) was enlivened following the Commissioner's rejection of SEHAL's offer of compromise.
- Whether SEHAL's offer, requiring it to pay additional income tax of just over $17 million, amounted to a substantial compromise or was, in substance, close to capitulation by the Commissioner.
- Whether the dispute concerning the construction of s 160ZZSC of the Income Tax Assessment Act 1936 (Cth) raised an important point of law such as to displace the presumptive entitlement to indemnity costs.
- Whether the Commissioner had adduced evidence to establish the importance of the legal issues in dispute.