D.C.T. v John Barnes and D.C.T. v Judith Barnes (No.2)
[2008] FMCA 1229
•3 September 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| D.C.T. JOHN BARNES & D.C.T. v JUDITH BARNES (No.2) | [2008] FMCA 1229 |
| BANKRUPTCY – Application for sequestration order – adjournment sought – review application pending before Administrative Appeals Tribunal – whether genuine and arguable grounds – exercise of discretion. |
| EVIDENCE – Affidavits – request for deponents to be made available for cross-examination – admissibility of affidavits where deponents not made available. |
| Bankruptcy Act 1966 (Cth), ss.40(1)(c)(i) Federal Court of Australia Act 1976 (Cth), s.47(4) Federal Magistrates Act 1999 (Cth), ss.42, 64(4), (5) and (6) Federal Magistrates Court Rules 2001 (Cth), r.15.29A Foreign Evidence Act 1994 (Cth), s.7 Income Tax Assessment Act 1936 (Cth), ss.102AAG(1), 177(1), 263 Tax Administration Act 1953 (Cth), ss.14ZZM, 14ZZR |
| Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 Commissioner of Taxation v Cumins [2008] FCA 353 Deputy Commissioner of Taxation v Barnes [2008] FMCA 7 Deputy Commissioner of Taxation v Feldman (2006) 62 ATR 253; [2006] NSWSC 378 Deputy Commissioner of Taxation v Jonrich Pty Ltd (1986) 86 ATC 4560 Deputy Commissioner of Taxation v Lowry [2006] FMCA 913 Gray v The Owners Corporation Strata Plan 61619 [2008] FMCA 678 Glentham Pty Ltd v McPhee [2007] FMCA 1939 Goodall v Nationwide News Pty Ltd [2007] FMCA 218 Harrington v Lowe (1996) 190 CLR 311 Mahfoud v Minister for Immigration, Local Government and Ethnic Affairs (1993) 33 ALD 609 Mudge v Hudson [2004] FCA 722 Pierson’s Pro-Health Pty Ltd & Ors v Silvex Nominees Pty Ltd & Anor [2008] FMCA 946 Re O’Neill [1972] VR 327 Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 Trade World Enterprises Pty Ltd v Deputy Commissioner of Taxation (2006) 64 ATR 316; [2006] VSCA 191 |
| D Pearce & S. Argument, Delegated Legislation in Australia (3rd Edn) (Chatswood: LexisNexis Butterworths, 2005) | ||
| Applicant: | DEPUTY COMMISSIONER OF TAXATION | |
| Respondent: | JOHN ERIC BARNES |
| File Number: | PEG 253 of 2007 |
| Judgment of: | Lucev FM |
| Hearing date: | 5 August 2008 |
| Date of Last Submission: | 5 August 2008 |
| Delivered at: | Perth |
| Delivered on: | 3 September 2008 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | JUDITH ANGELA BARNES |
| File Number: | PEG 254 of 2007 |
| Judgment of: | Lucev FM |
| Hearing date: | 5 August 2008 |
| Date of Last Submission: | 5 August 2008 |
| Delivered at: | Perth |
| Delivered on: | 3 September 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr J C Vaughan |
| Solicitors for the Applicant: | Australian Government Solicitor |
| Counsel for the Respondent: | Mr P N Bevilacqua |
| Solicitors for the Respondent: | Butcher Paull & Calder |
ORDERS
(1)The Respondent’s application to adjourn the hearing of the Creditor’s Petition be dismissed.
(2)The Creditor’s Petition be heard at 10:15am on 11 September 2008.
(3)The parties are to confer on costs of the adjournment application with a view to reaching agreement. If no agreement can be reached, costs are to be dealt with at the hearing at 10:15am on 11 September 2008.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 253 of 2007
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| JOHN ERIC BARNES |
Respondent
PEG 254 of 2007
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| JUDITH ANGELA BARNES |
Respondent
REASONS FOR JUDGMENT
As Corrected
Application
This is an application by the respondents to adjourn applications against each of them by the applicant for the issuance of a creditor’s petition presented against each of the respondents on 13 December 2007.[1]
[1] There is also an application, alternatively, for a stay of the creditors petition proceedings. Any reference to the adjournment application in these Reasons for Judgment and the Orders made, are to be taken as applying to the stay application.
A brief history
On 13 December 2007 creditors petitions were issued against each of the respondents based upon an alleged debt said to comprise unpaid income tax, administrative penalties and general interest charges in the amounts of:
a)Mr Barnes - $3,861,687.16; and
b)Mrs Barnes - $3,631,340.09,
based on an act of bankruptcy being committed within six months before presentation of the petition in that the respondents remained out of Australia with intent to defeat or delay creditors for each day on and from 21 July 2007 (Mrs Barnes) and 25 July 2007 (Mr Barnes).[2]
[2] Bankruptcy Act 1966 (Cth), s.40(1)(c)(i) (“Bankruptcy Act”).
The issuance of creditors petitions is opposed by each respondent, each of them having filed a Notice of Grounds of Opposition, denying an intention to defeat or delay the creditors whilst remaining out of Australia since the relevant dates in July 2007.
The Court delivered a judgment ex parte in January 2008 and made orders freezing the respondents’ assets in Australia and requiring them to inform the applicant, on affidavit, of their assets worldwide within 10 working days after service of the orders.[3]
[3] Deputy Commissioner of Taxation v Barnes [2008] FMCA 7 (“Barnes (No 1)”).
The respondents did not comply with the requirement to file and serve an affidavit setting out their worldwide assets, and on 28 March 2008 the Court made further orders that the respondents comply with the order to do so, and file and serve an affidavit explaining their non-compliance. The Court further ordered that a Notice of Appearance and notice stating the grounds of opposition to the petition and any affidavits in support be filed.
The respondents filed Notices of Appearance and Notices of Grounds of Opposition to the petition on 28 April 2008.
On 30 April 2008 the respondents made application, supported by affidavit, for an adjournment of the hearing of the creditor’s petition pending determination of the respondents’ objections or alternatively that the proceedings be stayed until the determination of the respondents’ objections.
On 5 May 2008 the applicant filed and served on the respondents notices to produce, and on the following day filed and served notices requiring the respondents to attend for cross-examination in relation to the adjournment application.
On 8 May 2008 the Court ordered that the interim application for an adjournment be adjourned to the hearing of the creditor’s petition on 20 May 2008 and that the respondents produce legible copies of passports, requested in the notices to produce for inspection by the applicant.
On 15 May 2008 the Commissioner of Taxation issued notices of decision on the objection by the respondents, and in June 2008 issued notices of amended assessment to the respondents in the amounts of:
a)Mr Barnes - $2,078,701.92; and
b)Mrs Barnes - $1,371,157.24.
On 20 May 2008 the creditor’s petition was adjourned to 2 July 2008 for mention, with the respondents giving notice of an intention to renew the application for adjournment of the hearing of the creditor’s petition.
On 24 June 2008 the respondents gave notice of their intention to maintain the balance of their objections, and to commence an appeal on the grounds arising from the objections. That appeal has since been commenced.
The adjournment application was heard on 5 August 2008. Orders dismissing the adjournment application, and listing the creditors petition for hearing on 11 September 2008, were made on 1 September 2008.
Issues
The issues which arise in these proceedings are:
a)whether affidavits of the respondents ought to be admitted into evidence, where despite a request to attend for cross-examination, the respondents have failed to attend; and
b)whether there are genuine and arguable grounds for the appeal, and if there are whether the discretion to adjourn proceedings ought to be exercised.
Principles
The principles generally applicable are not in dispute and were recently restated by the Federal Court in Commissioner of Taxation v Cumins[4]. In Cumins the Federal Court (albeit on an application to stay the creditor’s petition, but there being no material difference in relevant principle) said:
“14 On proof of the matters mentioned in s 52(1) of the BankruptcyAct 1966 (Cth) ("the Act") a petitioning creditor has a prima facie right to the making of a sequestration order and the Court will proceed to make a sequestration order unless the Court is satisfied that for other sufficient cause a sequestration order should not be made: s 52(2)(b) of the Act; Cain v Whyte (1933) 48 CLR 639 at 646. The onus is on the respondent debtor to demonstrate "sufficient cause": Commissioner of Taxation v Bayeh (1999) 100 FCR 144 at [12].
15 Section 52(2)(b) of the Bankruptcy Act 1966 (Cth) is wide enough to entitle the Court, in a proper case, to adjourn or dismiss a petition in the exercise of its discretion, where the debtor demonstrates a genuine dispute as to the liability to pay the debt: Re Verma; Ex Parte Deputy Commissioner of Taxation (1984) 4 FCR 181 at 185 and 187. This power is discretionary: Clyne v Deputy Commissioner of Taxation (1982) 45 ALR 323 at 328.
16 The Court is entitled to inquire whether a judgment is founded on a real debt. In general, a court exercising jurisdiction should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings, provided that the appeal is based on genuine and arguable grounds: Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148; Bayne v Baillieu (1907) 5 CLR 64.
17 The mere fact that an appeal has been lodged does not without more, give rise to a duty to postpone the hearing of the petition: in Re Flatau: Ex Parte Scotch Whisky Distillers (1882) 22 QBD 83 (CA) at 84-85; nor will the court as a matter of course inquire into the validity of a judgment debt: Wren v Mahony (1972) 126 CLR 212 at 222-223.
18 The test to be applied has been described variously. The judgment debtor must point to grounds having "a real chance of success on appeal": Re Lewin: Ex Parte Milner (1986) 11 FCR 312 at 318; or ensure "that substantial reasons are given for questioning" whether there was in truth a debt: Wren 126 CLR 212 at 225. It is not enough to rely upon mere assertion. The onus is on the applicant for a stay to show the existence of a genuine dispute by adducing evidence establishing the substantial nature of the grounds of challenge: Verma, Virendra Kumar v Deputy Commissioner of Taxation [1983] FCA 388 referred to with approval in Re Verma 4 FCR 181 at 187.”[5]
[4] [2008] FCA 353 (“Cumins”).
[5] Cumins at paras. 14-18 per Gilmour J; see also Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148 per Davies, Lockhart and Neaves JJ; GlenthamPty Ltd v McPhee [2007] FMCA 1939 at paras. 8-20 per Lucev FM (“Glentham”); Deputy Commissioner of Taxation v Lowry [2006] FMCA 913 at paras. 20-26 per McInnis FM (“Lowry”).
For grounds for appeal to be genuine, they must be authentic and not spurious.[6]
[6] Glentham at para. 9 per Lucev FM.
In addition to the general principles applicable to this issue, there are legislative provisions which must be considered: namely: s.177(1) of the Income Tax Assessment Act 1936 (Cth)[7] and ss.14ZZM and 14ZZR of the Tax Administration Act 1953 (Cth)[8].
[7] “ITA Act”.
[8] “TA Act”.
Section 177(1) of the ITA Act provides as follows:
“The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.”.
Section 14ZZM of the TA Act provides as follows:
“The fact that a review is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no review were pending”
while s.14ZZR of the TA Act provides that:
“The fact that an appeal is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no appeal were pending”.
The principles emerging from the above legislative provisions were summarised in Deputy Commissioner of Taxation v Feldman & Anor[9]where it was said that:
[9] (2006) 62 ATR 253; [2006] NSWSC 378 (“Feldman”).
“(a) upon production of the notices of assessment in recovery proceedings, s.177(1) Income TaxAssessment Act 1936 (Cth) operates to preclude the taxpayer from impugning their veracity in those proceedings: F J Bloemen Pty Ltd at 375; Ho at 3-4;
(b) the veracity of the assessments can only be impugned in proceedings by way of appeal or review under Divisions 4 and 5 of Part 4C Taxation Administration Act 1953 (Cth): Ho at 4;
(c) the power to grant a stay of recovery proceedings is discretionary and should be exercised with great caution and only in special or exceptional circumstances: Deputy Commissioner of Taxation v Mackey (1982) 45 ALR 284 at 287, 289; Ho at 5;
(d) in exercising such discretion, great weight must be given to the terms of, and intention and policy embodied in s.14ZZM and s.14ZZR Taxation Administration Act 1953 (Cth), formerly s.201 IncomeTax Assessment Act 1936 (Cth), a provision that which been referred to in a number of decisions of this Court and the Federal Court of Australia: Mackey at 287; Ho at 5-6;
(e) sections 14ZZM and 14ZZR provide that the fact that an appeal to the Federal Court of Australia or review by the Administrative Appeals Tribunal is pending in relation to a taxation decision does not, in the meantime, interfere with or affect the decision, the subject of the appeal or reference, and income tax may be recovered on the assessment as if no appeal or reference were pending: Ho at 5-6;
(f) the effect of these sections is to give primacy to the general right of the Commissioner to have tax paid irrespective of the pendency of an appeal and its merits: Mackey at 287; Ho at 6;
(g) the effect of ss.14ZZM and 14ZZR must be to preclude the Court from considering the prospects of success of any review or appeal by a taxpayer to either the Administrative Appeals Tribunal or the Federal Court of Australia: Ho at 6;
(g) any speculation as to the prospects of the taxpayer on review or appeal is entirely inappropriate in recovery proceedings - such matters fall necessarily for determination by the appropriate forum, which will have before it all relevant and necessary evidence, upon appeal or review under Divs 4 and 5 of Pt 4C Taxation Administration Act 1953 (Cth): Mackey at 289; Ho at 6-7.”[10][10] Feldman ATR at 256 per Johnson J; NSWSC at para. 15 per Johnson J.
Not dissimilar observations had been made almost two decades before by the Federal Court in Snow v Deputy Commissioner of Taxation[11] where it was said that:
[11] (1987) 14 FCR 119 at 139 (“Snow”).
“It may generally be concluded from the preceding review, that the power of State courts to stay recovery proceedings instituted in them under the ITAA is well established and that courts exercising it have regard to the following propositions:
1. The policy of the ITAA as reflected in its provisions gives priority to recovery of the revenue against the determination of the taxpayer's appeal against his assessment.
2. The power to grant a stay is therefore exercised sparingly and the onus is on the taxpayer to justify it.
3. The merits of the taxpayer's appeal constitute a factor to be taken into account in the exercise of the discretion (although some judges have expressed different views on this point).
4. Irrespective of the legal merits of the appeal a stay will not usually be granted where the taxpayer is party to a contrivance to avoid his liability to payment of the tax.
5. A stay may be granted in a case of abuse of office by the Commissioner or extreme personal hardship to the taxpayer called on to pay.
6. The mere imposition of the obligation to pay does not constitute hardship.
7. The existence of a request for reference of an objection for review where appeal is a factor relevant to the exercise of the discretion.”[12]
[12] Snow at 139 per French J.
In Trade World Enterprise Pty Ltd v Deputy Commissioner of Taxation[13] it was said that:
“19 As the High Court stated in Clyne v. Deputy Commissioner of Taxation (N.S.W.),[9] the legislative scheme established in relation to tax recovery, as manifested in provisions like s.14ZZM of the Taxation Administration Act 1953, reflects a clear policy in favour of the Revenue against the taxpayer. The Commissioner is placed by the legislature in a position of special advantage and thus in general is free to pursue recovery proceedings, despite outstanding appeals and reviews against the disallowance of objections.
20 So to say is not to deny that this court has jurisdiction to stay recovery proceedings pending review of a disallowance of objection against assessments. It is clear that it does. But high authority makes plain that the policy of the legislation, as stated in provisions like s.14ZZM, is a matter to which great weight must be attached”.[14]
[13] (2006) 64 ATR 316; [2006] VSCA 191 (“Trade World Enterprise”).
[14] Trade World Enterprise ATR at 322 per Nettle JA; VSCA at paras. 19-20 per Nettle JA (agreeing with the leading judgment of Chernov JA, who did not address this point). Redlich JA agreed with the reasons given by both Chernov and Nettle JJA: Trade World Enterprise ATR at 324 per Redlich JA; VSCA at para 28 per Redlich JA.
The same point was made in Deputy Commissioner of Taxation v Jonrich Pty Ltd[15] where it was said that:
“The real effect of s.201 was to state a policy and its practical consequence was to provide a powerful factor influencing the courts against staying proceedings pending appeal or reference.”[16]
[15] (1986) 86 ATC 4560 (“Jonrich”).
[16] Jonrich at 4573 per Connolly J, cited with approval in Snow at 139 per French J.
In Lowry, where objections to taxation assessments had not been lodged, this Court observed that even if they were lodged ss.14ZZM and 14ZZR of the TA Act would operate so as not to prevent recovery of the outstanding amount of taxation under the decision sought to be challenged.[17]
Evidence
[17] Lowry at para. 27 per McInnis FM.
Affidavits relied upon
The respondents in support of the adjournment application sought to rely upon the following affidavits:
a)affidavit of John Eric Barnes sworn 24 April 2008;[18]
b)affidavit of Judith Angela Barnes sworn 25 April 2008;[19]
c)affidavit of Nathan Trent Thomson sworn 24 June 2008;[20]
d)affidavit of Nathan Trent Thomson sworn 31 July 2008;[21] and
e)affidavit of Jordan Allan Johnston sworn 1 August 2008.
[18] “Mr Barnes’ Affidavit”.
[19] “Mrs Barnes’ Affidavit”.
[20] Mr Thomson’s June Affidavit”.
[21] Mr Thomson’s July Affidavit”.
The applicant took issue with the admissibility of the affidavits of the respondents themselves, that is Mr Barnes’ Affidavit and Mrs Barns’ Affidavit. The admissibility of those affidavits is discussed further below.[22]
[22] See paras. 28-38 below.
The applicants in opposition to the adjournment application relied upon the affidavit of Carla Kovacevic sworn 30 June 2008.
The affidavits of the respondents – admissibility and weight
The respondents had been served a notice to attend the hearing of the adjournment application for cross-examination by the applicant. The respondents did not attend. The failure to attend was unexplained, save for the obvious fact that they were overseas.[23] When it was put to counsel for the respondents that they might have attended from the United Kingdom by either video or telephone link no explanation was forthcoming as to why they did not, or could not.[24] In the circumstances, counsel for the applicant submitted that the affidavits of the respondents ought not be admitted into evidence. The respondents, relying on s.64(6) of the Federal Magistrates Act 1999 (Cth),[25] said that the affidavits ought to be admitted and that the question of weight was a matter for the Court.
[23] Transcript at 7.
[24] Transcript at 7.
[25] “FM Act”.
The relevant statutory provisions are as follows:
a)section 64(4), (5) and (6) of the FM Act which provides as follows:
“(4) If:
(a) a person makes an affidavit; and
(b) a party to a proceeding in the Federal Magistrates Court adduces, or proposes to adduce, evidence by the affidavit;
a party to the proceeding may request the person to appear as a witness to be cross‑examined with respect to the matters in the affidavit.
(5) Subsection (4) has effect subject to the Rules of Court.
(6) If:
(a) a request under subsection (4) is given to a person who has made an affidavit; and
(b) the person does not appear as a witness to be cross‑examined with respect to the matters in the affidavit;
the Federal Magistrates Court is to give the matters in the affidavit such weight as the Federal Magistrates Court thinks fit in the circumstances.”
b)rule 15.29A of the Federal Magistrates Court Rules 2001 (Cth)[26] which provides as follows:
“The Court may:
[26] “FMC Rules”.
(a) dispense with the attendance for cross-examination of a person making an affidavit; or
(b) direct that an affidavit be used without the person making the affidavit being cross-examined on the affidavit.”
The Court has not dispensed with the attendance for cross-examination of the respondents. Further, there has been no direction that the affidavits be used without the respondents being cross-examined on the affidavits.
In Mudge v Hudson[27] the Federal Court was dealing with an appeal in a bankruptcy proceeding where this Court had refused to admit an affidavit (which went to service) into evidence where the deponent was not present and a telephone link had not been arranged. Both at first instance and on appeal reference was made to a submission that the relevant affidavit ought to be allowed into evidence and given such weight as the Court saw fit, that submission referring to ss.42 and 64 of the FM Act. However, neither in this Court nor in the Federal Court was that submission considered in any detail, or arguably at all,[28] and there is no rationale binding on this Court arising from Mudge.
[27] [2004] FCA 722 (“Mudge”).
[28] Mudge at paras. 10-11 and 27-33 per Conti J.
The general approach to any conflict between an Act and any rules of a court is that the Act prevails,[29] save where the Parliament has expressly provided that the rules of court prevail.[30] In this case, s.64(4) of the FM Act is expressly, by s64(5) of the FM Act, made subject to the FMC Rules, and, therefore, subject to r.15.29A of the FMC Rules. Thus, where a request for cross-examination is made, and the person attends in accordance with that request for cross-examination, the Court may direct that that person’s affidavit be used without the person making the affidavit being cross-examined.[31] The ability to do so might be necessary where a person has been requested to attend unnecessarily, where, for example, there is no dispute about any of the contents of the affidavit and the person concerned is not able to give any other relevant evidence, or where it is apparent that the person is only being called to inconvenience them, or where the cross-examination might be wholly scandalous or embarrassing. Section 64(6) is however not subject to r.15.29A, expressly or impliedly, and s.64(6) of the FM Act deals specifically with circumstances where the request for cross-examination under s.64(4) of the FM Act has been made and the person does not attend.
[29] Harrington v Lowe (1996) 190 CLR 311 at 322-326 per Brennan CJ, Dawson, Toohey, Gaudron, McHugh and Gummow JJ; Mahfoud v Minister for Immigration, Local Government and Ethnic Affairs (1993) 33 ALD 609 at 612 per Beazley J.
[30] As to Acts empowering delegated legislation to override the empowering Act see, generally, D Pearce & S. Argument, Delegated Legislation in Australia (3rd Edn) (Chatswood: LexisNexis Butterworths, 2005) pp14-15 and 222; paras. 1.20 and 19.8.
[31] FMC Rules, r.15.29A(b).
In those circumstances, which are the circumstances here, the proper construction of the words “the Federal Magistrates Court is to give the matter in the affidavit such weight as the Federal Magistrates Court thinks fit in the circumstances” where a request to cross-examine has been given but the person has not appeared to be cross-examined, and in particular the use of the word “is”, appears to make it mandatory for the Court to admit the affidavit, whilst the use of the words “thinks fit” give the Court a discretion as to what weight is given to the matters in the affidavit. That may vary from no weight at all to the full weight that the affidavit may bear.
The affidavits of the respondents are therefore admissible.
The statutory interpretation above and its outcome are consistent with the objects and rules of the FM Act as summarised in Goodall v Nationwide News Pty Ltd[32] where the Court said:
[32] [2007] FMCA 218 (“Goodall”).
“Reading together the objects of the FM Act in s.3, the mode of operation in s.42, and having regard to the objects of the FMCA Rules in r.1.03, it is apparent that the Court is intended to operate in a manner:
(a) as informal as possible in the exercise of judicial power;
(b) which is not protracted in its proceedings;
(c) which resolves proceedings justly, efficiently and economically;
(d) uses streamlined procedures; and
(e) avoids undue delay, expense and technicality.”[33]
[33] Goodall at para. 21 per Lucev FM.
The interpretation suggested is also confirmed by an examination of similar provisions of the Federal Court of Australia Act 1976 (Cth)[34] where s.47(4) provides as follows:
“Notwithstanding any order under subsection (3), if a party to a cause desires in good faith that the maker of an affidavit (other than an affidavit referred to in subsection (2)) proposed to be used in the cause be cross‑examined with respect to the matters in the affidavit, the affidavit may not be used in the cause unless that person appears as a witness for such cross‑examination or the Court, in its discretion, permits the affidavit to be used without the person so appearing.” (emphasis added)
[34] “FC Act”.
The Court has emphasised the words in s.47(4) of the FC Act cited above because they make it clear that an affidavit cannot be used unless the person appears as a witness for cross-examination unless the Court exercises a discretion to permit the affidavit to be used. That contrasts with the provisions of s.64(6) of the FM Act which provides that the affidavit is to be used, but that the discretion of the Court goes to the weight to be afforded it in the circumstances.
In circumstances where:
a)the respondents have been requested to attend for cross-examination;
b)the respondents have not attended;
c)no efforts have been made by the respondents to attend by video link or telephone link in circumstances where the ability to do so will usually be afforded to remote witnesses by this Court;[35]
d)there were matters upon which the respondents might have been cross-examined;[36]
e)ordinarily the respondents failure to attend for cross-examination would mean that the affidavits would not be admissible in evidence (subject to any relevant Court rules);[37] and
f)the respondents conduct has been such (both in relation to attendance for cross-examination, and generally) as to preclude any indulgences being granted to them, or any prejudice being suffered by the applicant on account of that conduct,[38]
the Court is of the view that no weight ought to be given to the respondents’ affidavits. This view will not preclude weight being given to either of the affidavits if there are future proceedings, if either of the respondents submit to cross-examination in any such proceedings.
[35] Goodall at para. 29 per Lucev FM; followed in Pierson’s Pro-Health Pty Ltd & Ors v Silvex Nominees Pty Ltd & Anor [2008] FMCA 946 at para. 10 per Lucev FM; and referred to without disapproval in Gray v The Owners Corporation Strata Plan 61619 [2008] FMCA 678 at para. 11 per Smith FM.
[36] See paras. 42-60 below.
[37] Re O’Neill [1972] VR 327.
[38] See paras. 5 and 28 above.
Consideration
The respondents made various submissions both written and oral in support of the adjournment application.
The respondents “overriding submission” was that the Court “should be troubled to force this matter to the petition where this dispute is still alive” and that there had been “a monumental blunder in terms of the assessment” and “the general point is that this dispute needs to be resolved before the drastic measures are undertaken in terms of sequestration order.”[39]
[39] Transcript at 11.
That argument is superficially attractive. The Court might feel entitled to feel uneasy where, as here, a review of the assessment has resulted in an adjustment by a significant amount. But the attraction is merely superficial. The argument lacks legal substance because of ss.14ZZM and 14 ZZR of the TA Act. Whatever trouble the Court feels, the policy of the Parliament enacted in these provisions, that is that the tax assessed is recoverable irrespective of any review or appeal, must prevail unless displaced by powerful and cogent evidence that raises a genuine dispute. Mere feelings of trouble are not enough, and the Court is not obliged to meet the trouble half way, or anywhere near it, for:
“To use the metaphor of a scale the effect of s201 [now ss.14ZZM and 14 ZZR of the TA Act] was that the needle stood in the Commissioner’s favour close to 100 and it would require a weighty case to be presented by the taxpayer to depress it below the half-way mark.
Further, the legislative scheme established in relation to income tax recovery, especially as manifested in ss177 and 201 of the ITAA reflects a clear legislative intent favouring the revenue against the taxpayer.”[40]
[40] Snow at 137 per French J.
Central to the respondents’ contentions before the AAT will be the question of control of a trust – the Pantheon Trust – which the respondents were found to control when the applicant made its determination on the respondents’ objections.
In order to persuade the Court that the appeal is genuine the Court might expect that the respondents would put forward significant evidence that the respondents did not control the Pantheon Trust.
It is the contributions made by the respondents to the Pantheon Trust which, in the absence of evidence as to the Trust’s income, have resulted in the assessments of taxation payable by the respondents in such significant amounts.
Significantly, neither of the respondents say anything substantive on their own behalves in relation to the control of the Pantheon Trust. In a three paragraph six line affidavit, Mrs Barnes agrees with the contents of Mr Barnes’ affidavit.[41] Mr Barnes, whilst commenting on a number of other factual matters, says nothing of the question of control of the Pantheon Trust. He does adopt as true and correct both in relation to factual matters and the factual matters stated in the objection “the affidavit of Nathan Trent Thomson”.[42] It is not apparent which affidavit of Mr Thomson is referred to because there is in evidence no affidavit of Mr Thomson predating Mr Barnes’ Affidavit. In relation to legal issues Mr Barnes relies upon the advice of Mr Thomson,[43] and says that he believes, based on advice from Mr Thomson, that the “objections have merit, and we have real prospects of succeeding.”[44] Such a statement is of course no more than a self serving conclusory statement, particularly where, as here, there was no written advice, and no evidence of the basis for any oral advice.
[41] Mrs Barnes’ Affidavit at para. 2.
[42] Mr Barnes’ Affidavit at para. 39.
[43] Mr Barnes’ Affidavit at para. 39.
[44] Mr Barnes’ Affidavit at para. 33.
The failure to give evidence as to control of the Pantheon Trust is a significant omission by the respondents. There is simply nothing in the evidence of each of the respondents personally as to a lack of control over the Pantheon Trust. Even if the Court had been minded to give some weight to the affidavits of the respondents, the omission or failure to give evidence of a lack of control, would entitle (and still does entitle) the Court to draw an inference adverse to the respondents as to control if there is other evidence which supports the applicant’s assertion of control of the Pantheon Trust by the respondents.
The respondents’ assertion of a lack of control over the Trust is seemingly based on a letter provided to their solicitors by Strachans (a specialist company and trust administration firm) in response to a request from the respondents’ solicitors. The relevant part of the letter, apparently based on advice from the trustees of the Pantheon Trust to Strachans, is in the following terms:
“Mr and Mrs Barnes are not currently, nor have at any time, been settlers, trustees or beneficiaries named in the Pantheon Trust and that neither of them have been appointed as protectors or appointees to the Trust. They have no right of access to any information in relation to the Trust and it would be inappropriate and a potential breach of the Trust to provide any documentation in relation to the affairs of the Trust to you.”[45].
[45] Thomson’s July Affidavit at para. 16 and Annexure C.
The respondents contend that they have never had control of this particular Trust in respect of which contributions have been assessed against them, and they want the opportunity to argue before the AAT about this issue.
In determining the objections the applicant had regard for the circumstances set out in s.102AAG of the ITA Act when determining whether the respondents were in a position to control the Trust. In that regard, the applicant gave detailed consideration as to the respondents’:
a)power to obtain the beneficial enjoyment of the corpus or income of the Trust;
b)control of the application of the corpus or income of the Trust;
c)whether the respondents were capable, under a scheme, of gaining the enjoyment or control referred to in (a) or (b) above;
d)whether the trustee acted in accordance with directions, instructions or wishes of the respondents; and
e)whether the respondents had the ability to change or remove or appoint the trustee.[46]
[46] Thomson’s June Affidavit at para. 5 and Annexure A – Notice of Decision on Objection, especially at paras. 33-59.
In relation to the power to obtain the beneficial enjoyment of the corpus or income the evidence available to the applicant included a telefax from from Strachans dated 17 October 2003 sent to the respondents, and copied to their solicitors, discussing fees Strachans charged for the Pantheon Trust and portfolio investment options for the Trust. It went on to discuss methods of reducing fees, and the closure of Trust bank accounts used for Mrs Barnes debit card and the holding of surplus cash, the effect of which would be to save on bookkeeping costs.[47]
[47] Thomson’s June Affidavit at para. 5 and Annexure A – Notice of Decision on Objection at para. 33.
The applicant concluded that this was evidence that the respondents were able to gain the beneficial enjoyment of the Trust bank account through the use of a debit card by one of the respondents, Mrs Barnes.[48]
[48] Thomson’s June Affidavit at para. 5 and Annexure A – Notice of Decision on Objection at para. 34.
In relation to the control of the application of the corpus or income the same telefax of 17 October 2003 outlined arrangements with respect to the investment of portfolio funds, and in the applicant’s view sought the approval of the respondents in relation to investment options for the Trust, the telefax having said with respect to those arrangements that the writer trusted that the arrangements met with the respondents’ approval.[49]
[49] Thomson’s June Affidavit at para. 5 and Annexure A – Notice of Decision on Objection at paras. 36-37.
There was a further email of 9 December 2003 which the applicants relied upon to indicate that the respondents controlled investment decisions, either directly or indirectly, and therefore, the corpus or the income of the Pantheon Trust.[50]
[50] Thomson’s June Affidavit at para.5 and Annexure A – Notice of Decision on Objection at paras. 38-39.
The evidence referred to above which was relied upon by the applicant was also relied upon by the applicant to satisfy itself that the respondents were capable, under a scheme, of gaining the enjoyment or control of the corpus or income.[51]
[51] Thomson’s June Affidavit at para. 5 and Annexure A – Notice of Decision on Objection at paras. 40-41.
The applicant also relied upon that evidence as evidence that the trustee acted in accordance with the directions, instructions or wishes of the respondents. Further, the applicant relied upon a telefax from Strachans dated 19 December 2003 to the respondents’ solicitors in which the mutual clients of Strachans and the respondents’ solicitors arrangements with respect to liquidation of a portfolio currently held by the Trust and closure of accounts, together with the continuation of current credit cards, was discussed. It would appear that that telefax was on-faxed to the respondents from the respondents’ solicitors, and on that basis the applicant was satisfied that they were the mutual clients referred to in the telefax of 19 December 2003, and that this was evidence that the trustee was prepared to act in accordance with their directions, instructions or wishes, which were being sought via the 19 December 2003 telefax. That conclusion was reiterated by a letter from the respondents dated 12 January 2004 to Strachans, including reference to the Trust, and responding in relation to the fee structure and relevant administrative arrangements.[52]
[52] Thomson’s June Affidavit at para. 5 and Annexure A – Notice of Decision on Objection at paras. 43-48.
Other information relevant to the services offered by Strachans in relation to tax planning and offshore administration was found in the offices of the solicitors as a result of an access pursuant to s.263 of the ITA Act. That access also uncovered at the solicitors’ office an undated letter signed by the existing protector of the Pantheon Trust for his resignation as protector, together with another undated letter, also signed by the present protector of that Trust, for the appointment of a new unnamed protector. The applicant concluded that this was evidence that the respondents had the ability to remove or appoint the trustee of the Trust.[53]
[53] Thomson’s June Affidavit at para. 5 and Annexure A – Notice of Decision on Objection at paras. 49-58.
On the above bases the applicant concluded that the respondents met all five criteria set out in s.102AAG(1) of the ITA Act 1936 and that as only one criteria was required to be satisfied, the respondents more than fulfilled the necessary conditions, and were deemed to control thee Pantheon Trust.[54]
[54] Thomson’s June Affidavit at para. 5 and Annexure A – Notice of Decision on Objection at para. 59.
The Strachans’ letter does not address the criteria for control relied upon by the applicant for its conclusion that the respondents were able to control the trust. No evidence is given separately addressing each, or any, of the criteria, save for the production of the Strachans’ letter set out above.
The failure of the respondents to deal with this critical issue is, of itself, in the Court’s view sufficient to establish that there is not a genuine dispute as to liability in this matter, or sufficient evidence to establish that for present purposes. The Strachans’ letter is self-serving, and in any event, does not address the relevant criteria under s.102AAG(1) of the ITA Act. Further, it fails to address the evidence relied upon by the applicant set out above, and, critically, says nothing of the ability of the respondents to remove and appoint a protector of the Trust, a power which might be inferred from the undated letters for that purpose found in the possession of the respondents’ solicitors.
In determining the assessments the applicant has relied upon deemed income attribution provisions. The applicant did so because the respondents did not produce any accounts prepared for the Pantheon Trust. They did not do so notwithstanding that they had advised the applicant that an accountant was to prepare accounts for the Pantheon Trust. This is of course further evidence of ability to control the Trust. However, the accounts were not sent to the applicant, and in a letter dated 15 April 2008 the respondents’ solicitors requested that the applicant determine the objection on the basis of the information supplied. The applicant was left with little choice but to determine the objections on the basis of the deemed income attribution provisions.[55]
[55] Thomson’s June Affidavit at para. 5 and Annexure A – Notice of Decision on Objection at paras. 5-7.
The respondents also rely upon a very late application under s.7 of the Foreign Evidence Act 1994 (Cth) which seeks the production of documents out of Switzerland. Such an application is an application to take evidence, not produce documents. In the circumstances, the mere making of the application cannot be evidence of the fact that there is a genuine dispute to be determined.
Conclusions and Orders
In all the circumstances, the Court is not satisfied that the respondents have fulfilled the very heavy onus cast upon them to produce evidence of a genuine, let alone an arguable, dispute sufficient to warrant adjournment of the creditors petition.[56] It is unnecessary to consider discretionary issues given that conclusion.
[56] See the discussion of the relevant principles and case cited at paras. 15-24 above.
On 1 September 2008 the Court accordingly made the following orders:
(4)The Respondent’s application to adjourn the hearing of the Creditor’s Petition be dismissed.
(5)The Creditor’s Petition be heard at 10:15am on 11 September 2008.
(6)The parties are to confer on costs of the adjournment application with a view to reaching agreement. If no agreement can be reached, costs are to be dealt with at the hearing at 10:15am on 11 September 2008.
I certify that the preceding sixty-three (63) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate: Sandra Gough
Date: 3 September 2008
Amendments to the footnotes on page 14 of Reasons for Judgment:
Amended from:
“36 See para. X-Y above.
37 [insert authority].
38 See paras. X-Y above.”
to:
“36 See paras. 42-60 below.
37 Re O’Neill [1972] VR 327.
38 See paras. 5 and 28 above.”
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