Commissioner of Taxation and Bertrand and Anor

[2020] FamCA 263

FAMILY COURT OF AUSTRALIA

COMMISSIONER OF TAXATION & BERTRAND AND ANOR [2020] FamCA 263

FAMILY LAW – PROPERTY – where the Australian Commission of Taxation seeks to intervene in the proceedings – where the application is opposed by the wife – where the husband supports the application – leave granted for the Commissioner of Taxation to intervene.

Family Law Act 1975 (Cth)

Deputy Commissioner of Taxation v Kliman (2002) FLC 93-113

APPLICANT: Commissioner of Taxation

FIRST RESPONDENT: Ms Bertrand

SECOND RESPONDENT: Mr Bertrand

FILE NUMBER: SYC 2440 of 2019

DATE DELIVERED: 28 April 2020

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Baumann J

HEARING DATE: 2 April 2020 with written submissions finalised by 22 April 2020

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr B Kasep

SOLICITOR FOR THE APPLICANT: Craddock Murray Neumann

COUNSEL FOR THE FIRST RESPONDENT: Mr P Campton SC

SOLICITOR FOR THE FIRST RESPONDENT: Barkus Doolan

THE SECOND RESPONDENT: Self-represented

Orders

1. That the Commissioner of Taxation be given leave to intervene in these proceedings.

2. That the Commissioner of Taxation shall file and serve within fourteen (14) days a Response to the wife’s further further amended Initiating Application filed 27 November 2019, particularising the orders sought.

3. That the Commissioner of Taxation be relived from the requirement to file an Affidavit in support of the Response.

4. That if any party seeks to pursue, at this time, an application for costs in respect of the Application in a Case filed 25 October 2019, then:

   (a)they shall file and serve any written submissions setting out the basis and quantification for the costs order sought, within fourteen (14) days;

   (b)any party seeking to oppose such orders shall file and serve written submissions in response within twenty eight (28) days; and

   (c)unless the Court otherwise orders, the issue of costs of this Application in a Case will be dealt with in chambers on the papers.

5. That if no application for a specific costs order in respect of this Application in a Case is made within fourteen (14) days, then the Court will order the parties’ costs of the Application in a Case filed 25 October 2019 be reserved to the trial judge for determination.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Commissioner of Taxation & Bertrand has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: SYC 2440 of 2019

Commissioner of Taxation

Applicant

And

Ms Bertrand

Respondent

And

Mr Bertrand

Respondent

REASONS FOR JUDGMENT

Introduction

1. On 2 April 2020, the Court heard and received submissions in respect of an interlocutory application by the Commissioner of Taxation (“ATO”) filed 25 October 2019 and initially returnable before a Registrar on 2 December 2019, seeking the following orders:

   “2.That leave be granted to the Commissioner of Taxation to intervene in these proceedings pursuant to s 92 of the Act.

   3.As a part of any final property settlement or orders between the Husband and the Wife, that the Court:

   a)take into account the taxation liabilities of the Husband;

   b)make provision in the final orders for the payment of the taxation liabilities of the Husband.”

2. This application, together with some applications by the wife, were originally listed for hearing in Sydney before me on 2 April 2020, however because of concerns about the capacity to hear all applications remotely, on 26 March 2020, all other applications of the wife were adjourned to a date to be fixed by a Registrar in the Sydney Registry.

3. I took the view that this application by the ATO could be dealt with remotely, and I received submissions from Mr Kasep of Counsel for the ATO in support of the application to intervene.  The husband, who is currently unrepresented supports the application by the ATO.

4. The wife opposes the intervention, and I received oral and written submissions on 2 April 2020 from Mr Campton of Senior Counsel.

5. During the course of submissions it was disclosed by the husband that he had reached an agreement with the ATO in respect of taxation liabilities that resulted in Supreme Court (New South Wales) proceedings 2019/… being discontinued.  By Orders made 2 April 2020, the husband was to produce documents relating to the “deal” reached with the ATO in respect of his taxation liabilities.  He did so (after providing a copy of the wife’s solicitors as directed) and those documents were marked as Exhibit 3.

6. Subsequently, on 7 April 2020, the wife’s solicitors sought to make further submissions “arising from the documents produced” and although consideration of this further submission was objected to by the ATO, the Court permitted the additional submissions to be filed and allowed the ATO and/or the husband to file further submissions strictly in reply.

7. The ATO’s application was vigorously opposed by the wife and both Counsel seemed to be at times a little provocative in their responses, to what is essentially a procedural matter.  Elements of delay in timely disclosure by the husband and/or non-disclosure seem to be asserted by the wife – and if found – may well be relevant to the consideration of costs arising from the application by the ATO.  I prefer to constrain these Reasons at this time to the substantive application to intervene, and for context, I record the following, hopefully, non-contentious history.

Background

1. The parties married in 2005 and separated in January 2019 and have four infant children who live primarily with the wife.  The husband was employed as a finance professional but since some time after July 2018, he has been involved with an entity known as B Group and at paragraphs 33 to 37 of the husband’s Affidavit filed 28 November 2019, the husband deposes to his interest in the B Group and particularly at paragraph 36 says that B Group “pays me a gross salary of $450,000 per annum”.  The wife is engaged full-time as a mother and homemaker.

2. The wife commenced proceedings for both parenting and financial/child support orders in this Court in April 2019 and there have been numerous Court appearances since then, however the application by the ATO had not been determined.

3. Importantly, for this application, the liability of the husband to the ATO has crystallised through the Supreme Court proceedings as reflected in the documents produced by the husband after the hearing on 2 April 2020.  Those documents reveal that:

   a)on 27 March 2020 the Supreme Court noted that the matter had resolved with “no further listings”, although the “Notice of Orders Made” is dated 2 April 2020;

   b)however the correspondence between the husband’s commercial lawyers and the lawyers for the ATO, dated 17 February 2020, reveals that the agreement was reached around that time;

   c)a document dated 6 March 2020 attaches a Notice of Discontinuance which included the terms of the Discontinuance, inter alia, that:

   i)at 26 February 2020 the husband is liable to pay the ATO $1,231,921.63 which appears to relate to personal income tax for the financial years 2014 to 2018 and an accepted liability for the year ended 30 June 2019 of $319,137.90;

   ii)within seven days of a written request, the husband undertakes to provide to the ATO information as requested to “ascertain when a family law proceedings finalisation has occurred, or is likely to occur”.

4. As earlier noted, the husband supports the application by the ATO to intervene.

Statutory framework

1. Section 92(1) of the Family Law Act 1975 (“the Act”) provides as follows:

   “(1)In proceedings (other than divorce or validity of marriage proceedings), any person may apply for leave to intervene in the proceedings, and the court may make an order entitling that person to intervene in the proceedings.”

2. Rule 6.02 (1) of the Family Law Rules 2004 (“the Rules”) provides that:

   “(1)A person whose rights may be directly affected by an issue in a case, and whose participation as a party is necessary for the court to determine all issues in dispute in the case, must be included as a party to the case.”

3. Rule 6.05 of the Rules provides that:

   “If a person who is not a party to a case (other than a person to whom rule 6.06 applies) seeks to intervene in the case to become a party, the person must file:

   (a)an Application in a Case; and

(b)an affidavit:

(i)setting out the facts relied on to support the application, including a statement of the person's relationship (if any) to the parties; and

(ii)attaching a schedule setting out any orders that the person seeks if the court grants permission to intervene.”

1. If a person is given leave to intervene in the case, that person “shall, unless the court otherwise orders, be deemed to be a party to the proceedings with all the rights, duties and liabilities of a party” (s 92(3)).

The submissions of Applicant ATO

1. Ms Kasep relied on written submissions filed 31 March 2020 and oral submissions in reply, contending that:

   a)the ATO does not say other than the tax liability is solely the husband’s liability but seeks to intervene so as to ensure the liability is taken into account when the discretion to alter the parties’ property interests are taken into account;

   b)pursuant to s 79(10) of the Act, as a substantial creditor of the husband, the ATO is entitled to became a party to the proceedings;

   c)the wife’s further amended Initiating Application filed 27 November 2019 seeks that the entirety of the nett proceeds of the former matrimonial home at Suburb C (estimated to be around $2,200,000 after payment of the secured mortgage) and any balance of remaining D Bank shares (currently totalling 3,460 with a gross value of approximately $346,000) be paid to her and the orders she seeks make no provision for any payment to the ATO in relation to the husband’s tax liabilities;

   d)relying on Deputy Commissioner of Taxation v Kliman (2002) FLC 93-113, the protection of third party creditors has been described as “a part of the exercise of the jurisdiction under s 79 where it is in the interests of one or both of the parties to a marriage that there be such protection” and further s 80(1)(f) confers powers of the court to order the payment of a tax liability, being a payment to a “public authority for the benefit of a party to the marriage”; and

   e)in response to the written submissions of the wife:

   i)the ATO has particularised the relief it seeks at paragraph 3 of the Application in a Case filed 25 October 2019, if given leave to intervene;

   ii)the allegations by the wife at paragraphs 4.2, 4.3, 5 and 6.1 of the submissions that the Application of the ATO is both premature and an “abuse of process”, are vigorously contested – the ATO has a statutory duty to pursue taxation liabilities;

   iii)contrary to the submission at paragraph 6.1, the Supreme Court proceedings have been “resolved”.  The husband has, of course, a duty to make full disclosure to the wife, however the ATO is not “a usual litigant” and certain secrecy provisions in s 355 of the TaxationAdministration Act 1953 (Cth) apply;

   iv)At paragraph 15.2, the wife contends that she may be compelled, by the Rules of the Court, to make disclosure to the ATO however the ATO have made no requests to the wife and it is difficult to envisage any need to do so; and

   v)The ATO does not “ignore the fact that the husband holds a substantial interest in an entity knows as Federation” (as asserted at paragraph 17), which is the primary source of income of the husband.

2. Although at paragraph 20 it could be interpreted as the ATO seeking to venture into what orders achieve justice and equity between the parties – by contending that the wife must to some extent “take the good with the bad”, having directly and indirectly benefited during the course of the marriage and post separation from funds that should have been applied towards Mr Bertrand’s taxation liabilities – I am not satisfied that at a final hearing, even if a party to the proceedings, the ATO is entitled to make such a submission.  Certainly the husband might do so.

3. Before summarising the submissions of the wife in opposing the application to intervene, I should note that in supporting the ATO’s application, the husband adopted the submissions of the ATO and, the wife contends, for the first time, confirmed a “deal” had been done with the ATO.  The husband perhaps identifying to some extent his likely argument that the benefit the wife obtained during the marriage (and thereafter) from his income is relevant to how his tax liability should be taken into account, contends that the wife had full knowledge of the accumulating tax liability (much of which arose, he says, from the sale of parcels of D Bank shares).

4. These issues are matters for the final property hearing to be considered.

The wife’s submissions

1. The written submissions of the wife filed on 1 April 2020 were prepared before the husband had made full disclosure of the effect and nature of the resolution of the Supreme Court proceedings and the crystallisation of the taxation liability and must be see in that context.

2. The wife says, broadly, that the husband has failed to make timely disclosure of the actions and correspondence leading up to the “deal” being consummated in February 2020, resulting in the notification to the Supreme Court of New South Wales leading to the order of 27 March 2020.  This Court was not informed at the Case Management Hearing (“CMH”) on 26 March 2020, when the Application in a Case was confirmed as listed for determination on 2 April 2020, that the “deal” had been done.  The written submissions of Counsel for the ATO do not refer to the result of the Supreme Court listing on 27 March 2020 – the day after the CMH and shortly before the written submissions were filed on 31 March 2020 by the Commissioner.

3. Nonetheless, the submissions of the wife as delivered by Mr Campton SC contend that:

   a)the lack of fulsome disclosure by the husband created a “vacuum of evidence” about the arrangement reached with the ATO (until the hearing on 2 April 2020 and subsequent further disclosure of documents as specifically directed by the Court), and this conduct is relevant to the exercise of the discretion permitting intervention;

   b)the submission made at paragraph five about litigation pending in two different forums has less weight now that it is clear the Supreme Court proceedings have “resolved”;

   c)the Commissioner has failed to articulate the “relief he is seeking on a final basis” and failed to demonstrate as required by Rule 6.02(1) that his “rights may be directly affected” and his “participation as a party is necessary for the Court to determine all issues in dispute in the case”; and

   d)the proposed intervention will have “a significantly adverse impact on the wife’s legal costs in these proceedings”.

4. The submissions conclude with the contention that “the Commissioner’s application to intervene is therefore premature and without basis” and should be dismissed with costs.

Discussion

1. Whilst I accept that the Commissioner as an unsecured creditor of the husband is not to be treated as a special creditor notwithstanding its obligations to recover taxation liabilities, I have in the exercise of my discretion and in the circumstances of this case, decided that the application to intervene by the ATO should be granted because:

   a)the Application in a Case adequately particularises the basis on which the ATO asserts that it is necessary for it to be a party, however I intend, after ordering that the Commissioner have leave to intervene, to order that the Commissioner shall, within 14 days file, serve a Response to the wife’s further further amended Initiating Application, particularising the orders they seek;

   b)although the debt has been crystallised by agreement (and even though no formal judgment has been entered against the husband), it is in the context of this asset pool a significant debt and one which the Court may need to take into account if, as is asserted, it is found that some of the taxation liability accrued during the marriage or where the benefits of the capital or income (without payment of required taxation owed by the husband), were enjoyed by the wife or family generally;

   c)I am concerned, on even a brief overview of the correspondence between the parties’ lawyers and the lawyer for the husband and the ATO, that full and timely disclosure of both the liability and ultimate compromise was not made by the husband.  However, for the purposes of this application above, I make no specific findings but, even taken at its highest, it is insufficient to persuade me intervention should be refused;

   d)Although, under the terms of the conditions for the Notice of Discontinuance, the husband has an obligation to effectively keep the ATO informed as to the “finalisation” of the property proceedings between the husband and the wife, it is not unreasonable in my view for the ATO to be a party so as to seek to persuade the Court that any entitlement which the husband is found to hold (if at all considering the wife’s application for the entirety of the property pool – before valuations of the interest in the B Group are completed), is not paid to the husband in such a manner so as to defeat the rights of the ATO as a significant unsecured creditor;

   e)I do not accept that the intervention of the ATO as a party will increase substantially the wife’s costs of this litigation through additional disclosure obligations or otherwise.  To the extent however that this was to occur, then as the intervention is permitted to allow the husband’s secured creditor to participate (to the extent necessary), then in the wide discretion under s 117(2) as to costs between the parties, such issues or effect can be considered at the appropriate time;

   f)These proceedings, which also include parenting proceedings, may never ultimately proceed to a final hearing.  To the extent that further Case Management Hearings are necessary, there are many such events where the participation of the ATO is unlikely to be necessary and the judicial officer can certainly exclude their appearance.  Even if, for example, the husband and the wife were able to reach a final consent order as to alteration of property interests, then the intervention of the ATO permits the Commissioner to make submissions as to how any entitlement of the husband is to be paid, taking into account his acknowledged taxation liability.

2. For these reasons, I am satisfied that the application for intervention should be granted.

3. As to the costs of this application, if any of the parties seeks an order for costs, then in my view that application should be dealt with at any final hearing.  At that time, it will be possible, for example, if it is asserted the husband has failed to make timely disclosure, then the conduct of the husband can be properly tested.  If findings are to be made, it might be that such findings shape other issues like credit, in addition to the conduct referred to in s 117(2A).

4. As a result of the Application in a Case being successful, I regard, on current submissions, the appropriate order to be that the costs of the Application in a Case be reserved to trial judge.

1. I am conscious however, that when the hearing concluded on 2 April 2020, I may have given the impression that the Court would consider an application for costs.  In those circumstances, if, after consideration of these Reasons, any party wishes to pursue an application for costs, then my directions setting out how that is to proceed can be applied.

2. If no application for costs is made for this Application in a Case is sought to be pursued at this time, then the Court will order costs be reserved to the trial judge.

I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Baumann delivered on 28 April 2020.

Associate: 

Date:  28 April 2020