Background
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 determined the market value of shares in the WPL Shareholding. On 5 February 2026, Shell Energy Holdings Australia Limited (SEHAL) served a Notice of Offer to Compromise on the Commissioner of Taxation proposing settlement at $10.82 per share. The Commissioner rejected the offer. The subsequent judgment found the market value to be $11.12 per share—more favorable to SEHAL than its own settlement proposal.
SEHAL sought a special costs order under Federal Court Rules 2011 r 25.14(3), which provides that when an applicant makes an offer to compromise and the respondent rejects it, and the applicant then obtains a more favorable judgment, the applicant is entitled to indemnity costs from two business days after the offer was served. The Commissioner opposed this, arguing the offer was not a substantial compromise and that the dispute involved important questions of law warranting departure from the presumptive costs position.
The Court’s Holding
Jackman J held that SEHAL was entitled to indemnity costs from 9 February 2026 (two business days after the offer was served). The court found that r 25.14(3) was enlivened: the offer was rejected, and the final judgment of $11.12 per share was more favorable than the proposed settlement of $10.82 per share.
The court rejected the Commissioner’s argument that the offer was not a substantial compromise, finding that SEHAL’s offer required SEHAL to pay just over $17 million in additional income tax—representing more than 15% of the amount at stake in the proceedings. This constituted a meaningful compromise, not near-capitulation by the respondent. The court also rejected the argument that the dispute concerned important points of law warranting departure from the presumptive rule, noting that the transitional provision of the old CGT law at issue appeared to have little ongoing significance to the tax community, and the Commissioner provided no evidence establishing the supposed importance of the legal issues.
Key Takeaways
- Offers to compromise trigger a presumptive entitlement to indemnity costs if rejected and a more favorable judgment is obtained, even by a small margin.
- A “substantial compromise” requires meaningful concession from the offering party, measured proportionally against the amount at stake—not whether the offer approaches the final judgment.
- General assertions that a dispute raises “important points of law” do not displace the presumptive costs rule without evidentiary support of ongoing significance to the judiciary or profession.
- Indemnity costs apply from two business days after service of the offer, covering pre-judgment and post-judgment costs at a higher rate than ordinary party-and-party costs.
Why It Matters
This judgment reinforces the strategic importance of settlement offers in tax disputes and commercial litigation generally. Parties rejecting compromise offers face a significant costs risk if the judgment proves more favorable to the offeror—even marginally. The decision clarifies that the quantum of compromise is assessed relative to the total amount in dispute, incentivizing genuine settlement negotiations and realistic valuations. For tax practitioners, the decision demonstrates that substantive concessions in settlement proposals will be enforced by costs awards, creating pressure to negotiate rather than pursue uncertain litigation.
The court’s dismissal of the “important point of law” exception absent evidence also signals a narrower scope for that defense. Parties cannot rely on abstract claims of legal significance; they must demonstrate concrete ongoing impact to the profession or tax administration. This approach prioritizes finality and settlement incentives over preservation of litigated authority on isolated transitional provisions.