Commissioner of Taxation of the Commonwealth of Australia v Barossa Vines Ltd

Case [2014] FCA 20

FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation of the Commonwealth of Australia v Barossa Vines Ltd [2014] FCA 20

Citation: Commissioner of Taxation of the Commonwealth of Australia v Barossa Vines Ltd [2014] FCA 20
Parties: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v BAROSSA VINES LTD (ACN 081 232 091), ANTONIO DE FRANCESCA, MARIO DE FRANCESCO, LUCIANO SIGNORE and FRANK SIGNORE
File number: SAD 146 of 2012
Judge: BESANKO J
Date of judgment: 3 February 2014
Catchwords:

TAXATION – Taxation Administration Act 1953 (Cth) s 290-50(2) – civil penalties – managed investment scheme – product rulings – implementation of a scheme in a way materially different from that described in a product ruling – joint submissions on proposed pecuniary penalties – totality principle.

Held: Pecuniary penalties of $625,000 for the first respondent and $125,000 for each of the third, fourth, fifth and sixth respondents imposed.
Legislation: Income Tax Assessment Act 1997 (Cth) ss 8‑1, 35‑10, 35‑55, 995‑1
Taxation Administration Act 1953 (Cth) Sch 1 s 290‑50
Cases cited: Australian Competition and Consumer Commission v P & N Pty Ltd [2014] FCA 6
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560
Pearce v The Queen (1998) 194 CLR 610
Date of hearing: 16 September 2013
Place: Adelaide
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 83
Counsel for the Applicant: Ms H Symon QC with Mr S Ure
Solicitor for the Applicant: Australian Government Solicitor
Counsel for the First, Third, Fourth, Fifth and Sixth Respondents: Dr C Bleby SC
Solicitor for the First, Third, Fourth, Fifth and Sixth Respondents: Minter Ellison Lawyers

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

SAD 146 of 2012
BETWEEN:

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Applicant
AND:

BAROSSA VINES LTD (ACN 081 232 091)
First Respondent

ANTONIO DE FRANCESCA
Third Respondent

MARIO DE FRANCESCO
Fourth Respondent

LUCIANO SIGNORE
Fifth Respondent

FRANK SIGNORE
Sixth Respondent

JUDGE:

BESANKO J

DATE OF ORDER:

3 FEBRUARY 2014

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:

1.Pursuant to s 290‑50(3) of Schedule 1 of the Taxation Administration Act 1953 (Cth):

(a)the first respondent pay to the Commonwealth a civil penalty of $625,000;

(b)the third respondent pay to the Commonwealth a civil penalty of $125,000;

(c)the fourth respondent pay to the Commonwealth a civil penalty of $125,000;

(d)the fifth respondent pay to the Commonwealth a civil penalty of $125,000;

(e)the sixth respondent pay to the  Commonwealth a civil penalty of $125,000.

2.There be no order as to costs.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

SAD 146 of 2012
BETWEEN:

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Applicant
AND:

BAROSSA VINES LTD (ACN 081 232 091)
First Respondent

ANTONIO DE FRANCESCA
Third Respondent

MARIO DE FRANCESCO
Fourth Respondent

LUCIANO SIGNORE
Fifth Respondent

FRANK SIGNORE
Sixth Respondent

JUDGE:

BESANKO J

DATE:

3 FEBRUARY 2014

PLACE:

ADELAIDE

REASONS FOR JUDGMENT

INTRODUCTION

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Commissioner of Taxation of the Commonwealth of Australia v Barossa Vines Ltd [2014] FCA 20
Case
[2014] FCA 20
Decision Date

CaseChat Overview and Summary

The case of Commissioner of Taxation of the Commonwealth of Australia v Barossa Vines Ltd involved a dispute concerning the imposition of civil penalties for breaches of tax laws. The respondents, Barossa Vines and several individual directors, were found to have contravened provisions of the Taxation Administration Act 1953, specifically relating to managed investment schemes and product rulings. The primary issue before the court was the determination of appropriate pecuniary penalties for these contraventions, considering the totality of the circumstances and the submissions made by both parties.

The court examined the nature and extent of the contraventions, which involved the implementation of projects in a manner materially different from that described in the product rulings. Key factors considered included the severity of the breaches, the level of management oversight, and the respondents' cooperation and contrition. The court also assessed the warnings given by viticultural experts and the failure to address critical issues, which indicated a disregard for investor obligations. However, the appointment of a competent manager in 2009 and the relatively modest loss to investors were mitigating factors.

Following a detailed analysis, the court concluded that the proposed penalties were appropriate, balancing the seriousness of the contraventions against the mitigating factors. The court imposed a civil penalty of $625,000 on Barossa Vines and $125,000 on each of the four individual respondents. The decision emphasised the importance of compliance with tax laws and the consequences of failing to meet regulatory obligations.

The final orders of the court were as follows: Barossa Vines was ordered to pay a civil penalty of $625,000, while each of the four individual respondents was ordered to pay a civil penalty of $125,000. There was no order as to costs. The entry of these orders was governed by Rule 39.32 of the Federal Court Rules 2011.

Orders

Orders of the court

1. Pursuant to s 290‑50(3) of Schedule 1 of the Taxation Administration Act 1953 (Cth):

(a) the first respondent pay to the Commonwealth a civil penalty of $625,000;

(b) the third respondent pay to the Commonwealth a civil penalty of $125,000;

(c) the fourth respondent pay to the Commonwealth a civil penalty of $125,000;

(d) the fifth respondent pay to the Commonwealth a civil penalty of $125,000;

(e) the sixth respondent pay to the Commonwealth a civil penalty of $125,000.

2. There be no order as to costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

I will follow that approach in this case.BACKGROUND MATTERS RELEVANT TO THE CONTRAVENTIONS Barossa Vines was the responsible entity for nine schemes before the 2007 Project and the 2008 Project. The scheme areas before the 2007 Project comprised 769.5 ha and, as a result of the 2007 and the 2008 Projects, the scheme areas comprised 1020.9 ha. In other words, the vineyards increased by approximately one-third as a result of the 2007 and 2008 Projects. During the relevant period, Agribusiness’ staff consisted of the following:(1)a vineyard manager, Mr John Niutta, whose experience was as a tractor operator and vineyard hand. Mr Niutta stepped down in late 2008 because he was uncomfortable with how big the project was getting and the stress of managing the vineyards;(2)an assistant vineyard manager, Mr Ashley Ware, who had a Level 2 Certificate in Food Processing (Wine);(3)Mr Chris Galler, who was the former vineyard manager. He had a Certificate IV in Viticulture. By 2007, he was employed by a related winemaking entity, Rosedale Wines, and he maintained some ongoing involvement in the vineyards. However, he had no formal role with Barossa Vines or Agribusiness; and(4)there were three site supervisors, one irrigation operator, and up to seven vineyard hands during the relevant period. None of the vineyard hands had formal qualifications. Agribusiness routinely engaged independent contractors to perform various tasks on the vineyards. Those independent contractors included A & MJ Musolino (earthmoving), Linke Vineyard Services (for post knocking and trellising), Virginia Irrigation (irrigation design and installation) and labourers from Sem & Sem Pty Ltd. During the relevant period, Mr Paul Miller, a viticultural consultant, was engaged to provide external viticultural reports. Mr Miller provided reports for the board of Barossa Vines and for publication to investors, as well as providing reports in relation to suitability of blocks for use in commercial viticulture. Before March 2009, there is no documentary evidence of management attention to the complex issues involved in managing vineyards. There are no soil moisture monitoring records, no worksheets or records, no irrigation records, no manuals or policies and procedures. In March 2009, Agribusiness appointed Mr Syd Kyloh as vineyard manager. He was appropriately qualified for that position. In 2005 and in August 2006, Mr Miller warned Barossa Vines about staffing and he made specific mention of issues with expansion. In 2007, Barossa Vines engaged Mr Leigh Waechter as irrigation operator. Between 2006 and 2008, Barossa Vines made several attempts to recruit an experienced vineyard manager who was working with Southcorp and was known to Mr Luciano Signore. These attempts comprised discussions between the candidate and Mr Luciano Signore, but ultimately, the attempts were unsuccessful. Mr Antonio De Francesca recalls that there was “no sense of urgency” about the appointment at that stage. The discussions delayed Barossa Vines employing somebody else.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Each of the director respondents was also a director of Agribusiness and, in that capacity, bore responsibility for implementing the 2007 and 2008 Projects in a manner which conformed with the 2007 and 2008 Product Rulings. Frank Signore was not a director of Barossa Vines but he was a director of Agribusiness. He received less consideration than the other individual respondents. However, in addition to being a director of Agribusiness, he was the general manager and, therefore, the respondent with the most direct responsibility for the material differences in the implementation of the 2007 and 2008 Projects. In those circumstances, it is appropriate that the penalty imposed on him be the same as it is in the case of the other individual respondents.CONCLUSION In summary, these are significant contraventions, but at the same time they fall well short of the worst case. At one level, the causes of the contraventions may be characterised as incompetent management and staffing difficulties. However, that is not the full story. The failure to heed the warnings of the viticultural experts and others and to check on the progress on the rootlings mean, to my mind, that the respondents were prepared to put their own commercial interests ahead of their important obligations to investors. The element of concealment and maintenance of a false position impacts heavily on any suggestion of cooperation or immediate contrition. On the other hand, the appointment of a competent manager in March 2009 is a factor in the respondents’ favour, as is the fact that the loss to investors, although no doubt important to them, is not, relatively speaking, a very substantial sum. I am satisfied that the penalties proposed by the parties are appropriate and should be imposed. Barossa Vines is to pay to the Commonwealth a civil penalty of $625,000 and the four individual respondents are each to pay a civil penalty to the Commonwealth of $125,000. There is to be no order as to costs.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.