Commissioner of Taxation v Rowntree (No 2)
[2021] FCA 268
•12 March 2021
FEDERAL COURT OF AUSTRALIA
Commissioner of Taxation v Rowntree (No 2) [2021] FCA 268
File number(s): NSD 655 of 2014 Judgment of: RARES J Date of judgment: 12 March 2021 Catchwords: PRACTICE AND PROCEDURE – application for stay of hearing on penalty where leave to appeal liability decision granted – where no explanation for delay in bringing stay application or non-compliance with timetabling orders Legislation: Federal Court of Australia Act 1976 (Cth) Pt VB, ss 29, 30AK
Federal Court Rules 2011 (Cth) r 36.08
Tax Agent Services Act 2009 (Cth) ss 20-45(c), 70-10
Taxation Administration Act1953 (Cth) Sch 1 ss 290-50(1), 290-65(1)(a)(i), 290-65(1)(b)(i)
Cases cited: Commissioner of Taxation v Rowntree [2020] FCA 1322
Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303
Division: General Division Registry: New South Wales National Practice Area: Taxation Number of paragraphs: 23 Date of hearing: 12 March 2021 Counsel for the Applicant: Ms K J Deards SC with Mr A D’Arville Solicitor for the Applicant: Australian Government Solicitors Solicitor for the First Respondent: Mr A Martin of Nicola Velcic & Associates Counsel for the Second Respondent: Mr D McGovern SC with Mr I Young Solicitor for the Second Respondent: Dom Velcic & Co Solicitor Counsel for the Third Respondent: The third respondent did not appear ORDERS
NSD 655 of 2014 BETWEEN: COMMISSIONER OF TAXATION
Applicant
AND: BRUCE ELLIOT ROWNTREE
First Respondent
PETER JAMES DONKIN
Second Respondent
RINALDO (RICK) FRANK ALFRED MANIETTA
Third Respondent
ORDER MADE BY:
RARES J
DATE OF ORDER:
12 MARCH 2021
THE COURT ORDERS THAT:
1.The interlocutory application filed on 8 March 2021 be dismissed.
2.The second respondent pay the applicant’s costs of the interlocutory application filed on 8 March 2021.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(REVISED FROM THE TRANSCRIPT)RARES J:
On 18 September 2020, I published my reasons on liability and found, relevantly, that the second respondent, Peter Donkin, a chartered accountant and registered taxation agent, was a promoter of tax exploitation schemes in each of the financial years ended 30 June 2011 and 2012: Commissioner of Taxation v Rowntree [2020] FCA 1322 (the principal reasons).
On 16 October 2020, I made orders to give effect to those findings, including making declarations that in each of the income tax years ended 30 June 2011 and 2012, Mr Donkin contravened s 290-50(1) of Sch 1 to the Taxation Administration Act1953 (Cth) by engaging, in each such year, in conduct which resulted in him, and or his associated entity, Strategic Accounting Pty Ltd, being a promoter or promoters of a tax exploitation scheme within the meaning of s 290-65(1)(a)(i) and (b)(i), by which investors claimed income tax deductions for that year associated with the purchase of carbon reduction credits.
I also made procedural orders on 16 October 2020 to ensure that the matter could proceed to a hearing on penalty today; namely, that:
·by 20 November 2020, the Commissioner file and serve any evidence, in addition to that already admitted into evidence, on which he intended to rely for the purposes of the penalty hearing,
·by 22 January 2021, each respondent file and serve any evidence, in addition to that already admitted into evidence, on which he intended to rely for the purposes of the penalty hearing,
·by 12 February 2021, the Commissioner file and serve any evidence in reply,
·by 19 February 2021 the Commissioner file a single set of written submissions on penalty dealing with all of the respondents of not more than 15 pages,
·by 5 March 2021, each of the respondents file written submissions on penalty of not more than 10 pages, and
·the matter be fixed for today for hearing on penalty.
Mr Donkin, as was his right, sought leave to appeal from the adverse declaration that I made against him on 16 October 2020. As has been explained today by his senior counsel, something went wrong when his lawyers attempted to file that application within time on 30 October 2021 and, as a result, he applied for an extension of time and leave to appeal on 4 November 2021.
On 22 February 2021, Jagot J granted Mr Donkin leave to appeal. The Commissioner opposed that application, and I am informed from the bar table by senior counsel for Mr Donkin, who appears today but did not before her Honour, that her Honour said that the question of any application for stay ought be dealt with by me.
Mr Donkin’s grounds for a stay
Late on Monday, 8 March 2021, Mr Donkin, through his solicitors, filed an interlocutory application seeking a stay of proceedings without any affidavit in support. Yesterday, Mr Donkin swore and filed an affidavit, together with written submissions prepared by senior and junior counsel, supporting his stay application. In his affidavit, Mr Donkin claimed that he would suffer considerable prejudice in the event that I proceed with the hearing today and impose a penalty on him. He noted that he was at risk, as a tax agent, under s 20-45(c) of the Tax Agent Services Act 2009 (Cth), of having his continued registration cancelled by the Tax Practitioners Board as soon as he is penalised for being a promoter of a tax exploitation scheme. He accepted that this consequence involved a process of investigation by the Board that could take up to six months. Mr Donkin also accepted that, as the Commissioner had submitted to her Honour, there was no evidence that any investigation had yet commenced and that, even if the Board did terminate his registration, he could appeal to the Administrative Appeals Tribunal and seek a stay of the cancellation pending that review under s 70-10 of the Tax Agent Services Act.
Mr Donkin argued that the Commissioner would be likely to single him out, together with his clients, if a penalty were imposed. He noted that his professional body, Chartered Accountants Australia & New Zealand (CAANZ), had adjourned an investigation, pending the hearing of the leave application, into whether disciplinary proceedings should be taken against him. He said that it was within the power of CAANZ to recommence the investigation as soon as any penalty was imposed. He claimed that he would suffer professional stigma by the imposition of a penalty and the consequent impact on his career and income earning capacity. He said that he had suffered prejudice:
by reason of having expended money and making the application for leave to appeal, together with meeting the opposition to that leave application by the Commissioner in a contested hearing before Jagot J.
He asserted that her Honour must have been satisfied, as is apparent, that the conditions for a grant of leave to appeal had been satisfied. He argued that he had a bona fide appeal as to whether, in my principal reasons, I had construed correctly the requirements for determining that he had a “substantial” role in the operation and growth of the two schemes. He asserted that, because of the pendency of the appeal:
I am not in a position to indicate whether evidence will be led going to remorse or contrition … if the penalty phase continues the respondent Commissioner would achieve collaterally what it was unable to achieve by a direct contest on the leave application, namely the effective negating of the successful leave application.
Mr Donkin contended that those matters made it understandable why he had not made an application for a stay earlier than he did, on 8 March 2021, when he only filed the notice of appeal on 9 March 2021 pursuant to her Honour’s grant of leave. He contended that he had given undertakings to pursue his appeal as expeditiously as was possible and that he had not delayed in seeking a stay. Indeed, he argued that the question of delay was irrelevant to the consideration of whether a stay ought be granted.
Mr Donkin relied on the discreteness of his position, as compared to that of the other respondents and the fact that the Commissioner was ready today to deal with the other respondents’ cases. He contended that there was no prejudice to the Commissioner, or presumably to the orderly disposition of the Court’s business, if he were granted a stay postponing my dealing with the question of whether any penalty should be imposed on him until the appellate processes had been fully exhausted.
Consideration
As Mr Donkin acknowledged, r 36.08 of the Federal Court Rules 2011 provides that an appeal does not operate as a stay of execution or a stay of any proceedings under the judgment the subject of the appeal or invalidate any proceedings already taken.
He mistakenly sought to invoke, as a source, statutory power to grant a stay, ss 30AK or 29 of the Federal Court of Australia Act 1976 (Cth). However, neither of those sections on its face applies, the former applying only in proceedings in the criminal division and the latter to stays in respect of proceedings in another court.
Nonetheless, this Court, as a superior court of record, has an inherent or implied power to grant a stay of proceedings before it, and, as I apprehend it, I am asked to exercise such a power.
The determination of whether to grant a stay of proceedings necessarily involves a consideration and balancing of what is in the interests of justice in light of all of the circumstances. These include a consideration of the duties of the Court, the parties and their lawyers under Pt VB of the Federal Court of Australia Act to achieve the overarching purpose of the civil practice and procedure provisions.
Mr Donkin has given no explanation as to why, first, he did not seek a stay earlier than he did or, secondly, he failed to comply with the orders made on 16 October 2020 for filing any evidence on which he wished to rely by 22 January 2021 or submissions by 5 March 2021, other than to say that he would suffer prejudice by reason of having spent money in making the application for leave to appeal or indicating any remorse or contrition.
In my opinion, Mr Donkin’s application is without merit. It is not desirable, ordinarily, in the administration of justice, to interfere with the penalty hearing that was set down before Mr Donkin chose to seek leave to appeal and well before the application for stay was filed. The efficient use of the judicial and administrative resources available for the purpose of the Court disposing of its overall workload or proceedings in a timely manner at a cost proportionate to the importance and the complexity of the matters in dispute, and the just determination of this proceeding, all militate towards a refusal of the stay.
Ordinarily, in any proceeding in which a party seeks a penalty, whether civil or criminal, courts hear and determine questions of liability and proceed thereafter to hear issues about any penalty that ought be imposed in respect of liability, if it is found. In my opinion, bifurcating that process by staying a hearing on penalty is not desirable in a case such as the present. That is particularly so where the person seeking the stay has allowed the whole process for the penalty hearing to go forward without, at any earlier time, filing an application for stay and only does so four days before the hearing that was set down over four months earlier. Even then, the interlocutory application was filed on 8 March 2021, unsupported by any material at that time that could invoke the Court’s jurisdiction to grant the stay.
In Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303 at 321 [51], French CJ, Kiefel, Bell, Gageler, and Keane JJ said:
Speed and efficiency, in the sense of minimum delay and expense, are essential to a just resolution of proceedings. The achievement of a just but timely and cost-effective resolution of a dispute has effects not only upon the parties to the dispute but upon the court and other litigants.
I accept, of course, that Mr Donkin has a bona fide arguable appeal, and that he wishes bona fide to pursue his appeal with expedition. However, in my opinion, there is no reason why, first, he will suffer any prejudice that cannot be cured by an application, if need be, for a stay of execution of any penalty I might impose after I have made such an order or, secondly, any proceeding in the Board or a professional body, such as CAANZ. There is no evidence that the Board has taken any step in relation to Mr Donkin, and CAANZ has already adjourned its consideration of Mr Donkin’s position when he had, or had indicated to it that he had, an appellate process on foot. No doubt both bodies will not wish to expend, and potentially waste, their resources and time dealing with consideration of what, if any, action should be taken against Mr Donkin while his appellate process is on foot.
In my opinion, the orderly and efficient administration of justice in this matter will be facilitated by my deciding all aspects of what, if any, penalty ought be imposed in accordance with the orders made on 16 October 2021 so that the Full Court can also consider any appeal against whatever penalty I impose and the matter can be dealt with cognately. The Full Court will be able to correct any error in the principal reasons and orders imposing any penalty that Mr Donkin is able to demonstrate.
I reject Mr Donkin’s argument that a stay would occasion no prejudice to the Commissioner. Mr Donkin chose to do nothing for two weeks from 22 February 2021 to file his stay application. The Commissioner has fully prepared the case for hearing today, following what I was informed was Jagot J’s indication on 22 February 2021 that her Honour was not prepared to grant a stay. When he did file that application, it was unsupported by any evidence until yesterday.
Mr Donkin has known, since 30 October 2020 or thereabouts, that he wished to pursue appellate avenues before a penalty hearing, but has done nothing to seek to disturb the timetable which he knew was made for the orderly preparation of today’s hearing.
Conclusion
I am not persuaded that it is in the interests of justice to grant a stay. I dismiss the interlocutory application with costs.
I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rares. Associate:
Dated: 23 March 2021
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