Deputy Commissioner of Taxation v Caporale
[2014] FCCA 250
•21 February 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DEPUTY COMMISSIONER OF TAXATION v CAPORALE | [2014] FCCA 250 |
| Catchwords: BANKRUPTCY – Creditor’s Petition – Notice Stating Grounds of Opposition to Petition filed – Adjournment of Petition requested to explore avenue of seeking access to Australian Taxation Office documents forming the basis of previous judgment that would constitute “other sufficient cause” – Allegation that Deputy Commissioner of Taxation breached its obligations under Model Litigant Obligations of Legal Services Directions 2005 (Cth) – Application dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.5, 43 Income Tax Assessment Act 1936 (Cth), ss.175, 177 |
| Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 Attorney-General for New South Wales v Chidgey [2008] NSWCCA 65 Botany Bay Instrumentation & Control Pty Ltd & Anor v Stewart& Anor [1984] 3 NSWLR 98 Caporale v Deputy Commissioner of Taxation (2013) 212 FCR 220 Caporale v Deputy Commissioner of Taxation (No.2) [2013] FCA 473 Clyne v Deputy Commissioner of Taxation (NSW) (1983) 48 ALR 545 Commissioner of Taxation v Futuris Corporation Limited (2008) 237 CLR 146 Deputy Commissioner of Taxation v Caporale [2013] FMCA 5 Deputy Commissioner of Taxation v Chemical Trustee Ltd [2010] FCA 1297 Deputy Commissioner of Taxation v Warrick (No.2) [2004] FCA 918 Giacomo Caporale v Deputy Commissioner of Taxation [2012] FMCA 1178 R v Saleam [1999] NSWCCA 86 Sandell v Porter (1966) 115 CLR 666 Re Trevaskis; Ex parte Deputy Commissioner of Taxation [1993] FCA 572 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | GIACOMO CAPORALE |
| File Number: | SYG 858 of 2013 |
| Judgment of: | Judge Lloyd-Jones |
| Hearing dates: | 1 and 10 July 2013 |
| Delivered at: | Sydney |
| Delivered on: | 21 February 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr J. O'Brien |
| Solicitors for the Applicant: | ATO Legal Services Branch |
| The Respondent: | Ms R. Caporale appeared as lay advocate on behalf of her father, Giacomo Caporale. |
ORDERS
The Notice Stating Grounds of Opposition to the Creditor’s Petition filed by the Respondent Debtor on 26 June 2013 be dismissed.
The Respondent Debtor is to pay the Applicant Creditor’s costs of the Notice Stating Grounds of Opposition to the Petition filed on 26 June 2013 as agreed or taxed.
The Creditor’s Petition be set down for hearing forthwith.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 858 of 2013
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| GIACOMO CAPORALE |
Respondent
REASONS FOR JUDGMENT
Introduction
On 24 April 2013 the Deputy Commissioner of Taxation (the “DCT”) filed a Creditor’s Petition in this Court (the “Petition”) seeking a sequestration order under s.43 of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”) against the estate of the respondent debtor, Mr Giacomo Caporale. The Petition asserts that Giacomo Caporale owes the DCT the amount of $860,653.13, comprising of the amount of $851,524.17 due under a final judgment obtained in the Supreme Court of New South Wales at Sydney on 3 August 2012, plus $8,840.96 being interest on the judgment up to 12 September 2012.
A bankruptcy notice was issued against Giacomo Caporale following judgment obtained in the Supreme Court, Case Number 2011/00245686 (the “Bankruptcy Notice”) and this notice founds the Petition currently before the Court. The Bankruptcy Notice was personally served on Mr Caporale on 18 October 2012 at 2.55pm where Mr P. White, a licenced commercial agent, served a copy of Bankruptcy Notice BN 5885 issued 18 September 2012 and a copy of the Supreme Court’s judgment noted above. The DCT contends Giacomo Caporale committed an act of bankruptcy by failing to comply on or before 20 November 2012 with the requirements of the Bankruptcy Notice, or to satisfy the Court that he had a counter-claim, set-off or cross-demand equal to or more than the sum claimed in the Bankruptcy Notice, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment referred to in the Bankruptcy Notice was obtained.
On 29 May 2013 the DCT filed an application in a case seeking orders that personal service of the Petition to be dispensed with, together with orders for substituted service. This was supported by an affidavit of attempted service setting out the circumstances that the licenced commercial agent had pursued in attempting to effect personal service. Registrar Ng made orders for substituted service of the Petition on 29 May 2013 and listing the matter for hearing on 26 June 2013. On that date the Petition was further adjourned to allow time for the service of subpoenas. The Petition was then referred to this Court by Registrar Ng on 1 July 2013 from the Registrar’s Bankruptcy List.
The Petition is resisted by Giacomo Caporale, who relies upon a Notice Stating Grounds of Opposition to the Petition (the “Notice of Opposition”), purportedly filed in Court before Registrar Ng on 26 June 2013. A copy of the document is on the Court file with a note placed on the document stating “copies handed up in Court, replace with originals”. Enquiries were then made as to the status of the original Notice of Opposition and there appeared to be some confusion about location of the original. Rosa Caporale, appearing for her father Giacomo Caporale, stated that she had handed up her original copy. The original of that document has not made its way to file. In order for the expeditious handling of the Petition and Notice of Opposition I indicated to the parties the filed copy of the Notice of Opposition would be the copy on the Court’s file.
Notice Stating Grounds of Opposition to the Petition
The Notice of Opposition pleads the following grounds:
1. The Respondent is filing an for a Judiciary Review under section 39b of the Act 1903
2. This is on the basis that the Deputy Commissioner of Taxation could not have relied on the “Conclusive Evidence” provision to obtain a judgment if it is found that “there is corrupt or a deliberate failure to comply with the provisions of the income tax law by the Commissioner”, as there is a Defect in the Notice of the making of the assessments due to the corrupt or a deliberate failure to comply with the provisions of the income tax law by the Commissioner.
3. It will deny natural justice to the Respondent.
4. It will deny procedural fairness to the Respondent.
5. An affidavit supporting the grounds of opposition is filed with this notice.
6. The Respondent therefore seeks that the Creditors petition is dismissed or alternatively that it is adjourned until all of the above matters are decided upon by the various jurisdictions.
Background
Raphael FM (as he was then) heard in a related, earlier proceeding an application to set aside or extend the time for compliance with the Bankruptcy Notice. The application was dismissed: Giacomo Caporale v Deputy Commissioner of Taxation [2012] FMCA 1178. In that matter his Honour set out a brief history of the matter at [3]-[7], where he stated:
3. Mr Caporale is a garage operator who appears to have been involved in a number of business activities. He did not file tax returns between 1995 and 2000. At some stage the Deputy Commissioner made a default assessment against him pursuant to the provisions of s.167 of the Income Tax Assessment Act 1936[1]. It was that default assessment that was the subject of the judgment in the Supreme Court of New South Wales.
4. The judgment was obtained in the Supreme Court of New South Wales pursuant to the provisions of s.177 of the Act which provides:
“[177] 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.”
5. It would appear that at some time Mr Caporale has sought the Commissioner’s agreement for an extension of time in which to file tax returns for the relevant years. After considering the matter the Commissioner declined to grant him that extension and sought payment of the debt assessed. Mr Caporale, as he was entitled to, appealed that decision of the Commissioner to the Administrative Appeals Tribunal. The Tribunal held a hearing at which Mr Caporale was represented. It came to the conclusion that it should not require the Commissioner to grant Mr Caporale the extensions of time.
6. That decision of the AAT was appealed to Robertson J of the Federal Court of Australia. On or about 17 February 2012 Robertson J dismissed the application to appeal the decision of the AAT.
7. It seems that another application was made to the AAT by Mr Caporale essentially making the same arguments as in the original application. The AAT determined that it did not have jurisdiction to hear this matter as it was functus. I am told by Ms Caporale that it is intended to appeal that decision but no appeal has yet been filed. In any event these proceedings are only tangentially relevant to the debt. At best they will allow Mr Caporale to file tax returns for the years in question in respect of which, at the moment, there is a default assessment that has not been paid and in respect of which a judgment has been entered. No appeal has been made against that judgment.
Hearing before this Court
Respondent Debtor’s Submissions
Ms Caporale informed the Court that she relied on the Notice of Opposition, supported by the affidavit of Rosa Caporale sworn 26 June 2013 and filed the same day. Ms Caporale did not provide written submissions and, instead, spoke extensively to the filed documents.
Before Registrar Ng on 1 July 2013 Ms Caporale sought to have the Petition adjourned, a course that was opposed by the DCT and the proceedings were then referred to this Court. Essentially, Ms Caporale argued that in the judgment against herself of Robinson J: Caporale v Deputy Commissioner of Taxation (No.2) [2013] FCA 473 there was an application for review under s.39B of Judiciary Act 1903 (Cth). In that matter the DCT argued that the appellant was not entitled under s.55ZG of the Judiciary Act 1903 (Cth) to bring up matters of non-compliance of the Legal Services Directions 2005 (Cth). Ms Caporale submitted that the only person to be able to enforce that is the Attorney-General. Ms Caporale argued that his Honour Robertson J in Caporale v Deputy Commissioner of Taxation (2013) 212 FCR 220 confirmed that the only avenue the respondent debtor has available to him is where Giacomo Caporale believes the DCT has breached its duties under the Model Litigant Obligations of the Legal Services Directions 2005 is to go back to the Attorney-General, as it is the Attorney-General who has the statutory power to be able to compel the DCT to give information or facts that it might be aware of, that led to the alleged incorrect or improper tax assessment.
For that reason Ms Caporale, on behalf of her father, has sought an adjournment of approximately six weeks to give her time to issue a subpoena to the DCT, have the documents returned and to take the documents to the Attorney-General to determine whether the DCT should retract certain facts in respect of quantum of, or documents used to decide, the tax assessment on which the judgment debt is based.
Ms Caporale referred the Court to her affidavit sworn and filed on 26 June 2013 at [19] where she stated:
19. On the 14th of June 2013 David Warren from the Attorney General’s office stated to Rosa Caporale to the effect: “The Attorney-General has the statutory legal powers and will compel the ATO to withdraw from any legal or other actions that has resulted from facts that the ATO knew and knows to be fact and to be true. Send the documents and the facts directly to the Attorney-General and it he will take the necessary steps to complete the ATO to act in accordance with its legal service direction and withdraw the matters”
Ms Caporale indicated that as a result of that advice she seeks to issue a subpoena on behalf of Giacomo Caporale as part of these proceedings to obtain that information. Ms Caporale indicates that the purpose of this step is that the Australian Taxation Office (“ATO”) will need to produce those documents which she will then be able to forward to the Attorney General.
Ms Caporale indicated to the Court that if the Attorney-General examined the materials produced, and formed the opinion that the ATO had dealt with that information in a manner that was held contrary to the Commonwealth’s Model Litigant Obligations contained in the Legal Services Directions, he could direct the ATO to retract documents that it had employed to obtain judgment against Giacomo Caporale. Ms Caporale argued that if she was prevented from taking these steps it would prejudice the position of Giacomo Caporale.
Ms Caporale referred the Court to her Affidavit sworn 26 June 2013 at p.34, which is a summary of taxable income for Giacomo Caporale in the years 1994-2000. Ms Caporale informed the Court that these were summaries prepared by their resources which will be forwarded to the Attorney-General, and in turn will be matched against the documents completed by the ATO. Ms Caporale submits that it is her understanding that if those facts match the documents subpoenaed from the ATO, essentially, the Attorney-General will direct the ATO to retract that material from these proceedings and from the judgment founding the Bankruptcy Notice and that would dismiss the Petition. This Court could then enter judgment by consent. Ms Caporale contends this summary shows she has enough evidence she is able to produce, but there is a process that the ATO actually has to respond to formally so that the material can be considered by the Attorney-General to determine whether the Model Litigant Obligations have been complied with.
Applicant Creditor’s submissions
Mr O’Brien, appearing for the DCT, handed up a short outline of submissions which includes a brief chronology of the relevant dates and events in this matter which is set out as follows:
Date Event 1995 to 2002 Assessments issued to respondent for 1994 to 2000 income years 29 July 2011 The applicant files a statement of claim in the Supreme Court seeking judgment against the respondent 2 August 2011 AAT (Administrative Appeals Tribunal) dismisses objection by the respondent for the 1996 to 2000 income years 16 September 2011 Respondent files with the AAT an application for extension of time to object against 1995 to 2002 income years 17 February 2012 Federal Court dismissed appeal by the respondent from the AAT decision for the 1996 to 2000 income years 3 August 2012 Judgment obtained in Supreme Court for $851,524.17 18 September 2012 Bankruptcy notice issued 25 October 2012 AAT refuses application for extension of time to objet against 1995 to 2002 income years 8 November 2012 Applicant files an application in the Federal Circuit Court (FCC) to set aside the bankruptcy notice 19 November 2012 FCC dismisses the application to set aside the bankruptcy notice 22 April 2013 Creditor’s petition filed by the applicant in FCC
Mr O’Brien argued that this is not the first time that Ms Caporale has sought an adjournment. Mr O’Brien took the Court through the chronology of the matter and referred to the various times Ms Caporale had sought adjournments. As noted in the chronology, the related proceedings have been appealed on a number of occasions and Mr O’Brien argued that the end result has been that any appeal on the merits has been fruitless. Mr O’Brien also noted that there had been an application to set aside or extend the time for compliance with the Bankruptcy Notice filed that was subsequently dismissed by Raphael FM (as he was then) (see [6] above).
Mr O’Brien relied upon the Affidavit of Jason Green sworn 28 June 2013, where at Annexure “JG1” appears a letter dated 13 June 2013 from the Commonwealth Attorney-General’s Department to Ms Caporale. In that letter it states:
…You have requested that the Attorney-General require the Deputy Commissioner of Taxation to comply with the model litigant obligations, set out in Appendix B to the Directions, in relation to taxation-related proceedings to which you, and/or entities you represent, are a party. You have also requested that the Attorney-General approve you raising compliance with the Directions in those proceedings, pursuant to section 55ZG of the Judiciary Act 1903…
I have now considered the further information that you have provided to us, information that the ATO has provided to us in response to your complaint, and the 9 May 2013 decision in Caporale v Deputy Commissioner of Taxation [2013] FCA 427. I do not consider that any of this information establishes grounds upon which it would be appropriate for me to recommend to the Attorney-General that he should direct the Deputy Commissioner of Taxation as you have requested, or to approve you raising allegations of non-compliance with the Directions in proceedings.
Mr O’Brien brought to the Court’s attention that the letter dated 13 June 2013 from the Attorney-General’s Department to Ms Caporale is not contained in her affidavit, which she relies on in seeking an adjournment in respect of this particular issue.
Mr O’Brien submitted the Court has discretion not to make a sequestration order on three potential grounds:
a)By “going behind the judgment debt” and arguing that the judgment was not based on a real debt;
b)The respondent is solvent; and/or
c)There is “other sufficient cause” why the sequestration order should not be made.
The Notice of Opposition filed by Giacomo Caporale only seeks to raise the third ground in opposition to the Creditor’s Petition. In broad terms Giacomo Caporale relies on an allegation that the DCT failed to comply with the provisions of relevant income tax law, that the DCT did not give Giacomo Caporale natural justice or procedural fairness, or that the DCT did not comply with government directions such as the Model Litigant Obligations.
In respect of going behind the judgment debt ([17](a)):
a)The judgment debt underlying this proceeding arises from assessments of personal income tax. The consequence of the terms of the operation of ss.175 and 177 of the Income Tax Assessment Act 1936 (Cth) is that the Court is not able to go behind the assessments and must accept that there is in truth and reality a debt: Clyne v Deputy Commissioner of Taxation (NSW) (1983) 48 ALR 545 at 547; Re Trevaskis; Ex parte Deputy Commissioner of Taxation (1993) 93 ATC 5037 at 5039, [1993] FCA 572 and Caporale v Deputy Commissioner of Taxation (No.2) [2013] FCA 473;
b)In taxation maters a court will sometimes allow the review/ appeal in respect of the tax dispute (pursuant to Part IVC of the Taxation Administration Act 1953 (Cth)) to proceed by way of granting an adjournment of the bankruptcy application; see, for example, Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137. However, in this matter Mr Caporale has effectively exhausted all of his rights of review/appeal against the tax assessments; and
c)The DCT submits that it is able to rely on the conclusive provisions set out in s.177 of the Income Tax Assessment Act 1936 (Cth) and Mr Caporale is unable to challenge the liabilities giving rise to the judgment. For these reasons there is no utility in going behind the judgment.
In respect of solvency ([17](b)):
a)A person is solvent if, and only if, the person is able to pay all of his or her debts as and when they fall due. A person who is not solvent is insolvent; s.5 of the Bankruptcy Act; and
b)The DCT submits that the general test of an ability to pay dents is set out in Sandell v Porter (1966) 115 CLR 666 at 679 per Barwick CJ. Giacomo Caporale has not sought to adduce any evidence of solvency.
In respect of “other sufficient cause” ([17](c)):
a)The basis of the application primarily appears to be a generalised allegation of conscious maladministration by the DCT which “infects” the assessments so as to make the assessments invalid; see Commissioner of Taxation v Futuris Corporation Limited (2008) 237 CLR 146;
b)The DCT submits that the source of jurisdiction to consider the validity of an assessment is limited to a court exercising jurisdiction under s.39B of the Judiciary Act 1903 (Cth).
c)The DCT argues that even if, contrary to the above, this Court was able to consider the issue of conscious maladministration which may establish “other sufficient cause”, the evidence of Giacomo Caporale is completely deficient to establish “other sufficient cause”;
d)The DCT submits that Giacomo Caporale, in the Notice of Opposition, also referred to a failure to provide natural justice and to a lack of procedural fairness without providing any particulars as to the circumstances where this is alleged to have occurred. It is difficult to contemplate Giacomo Caporale, in the current circumstances, having been denied natural justice or procedural fairness where he has fully pursued his review and appeal rights both to the Administrative Appeals Tribunal (“AAT”) and the Federal Court of Australia as provided for under all the relevant taxation legislation;
e)The DCT argues even if, contrary to the above, there was a denial of procedural fairness, it does not follow the assessment decisions in proceedings under s.39B of the Judiciary Act 1903 for breaches of procedural fairness (even assuming the Federal Circuit Court has the power: Deputy Commissioner of Taxation v Warrick (No.2) [2004] FCA 918 at [81]; Deputy Commissioner of Taxation v Chemical Trustee Ltd [2001] FCA 1297 at [49]). Nothing said by the majority of the High Court in Futuris (supra) suggests that the scope for review of assessment decisions under s.39B extends to alleged breaches of procedural fairness;
f)The DCT denies any allegations that it did not comply with the Model Litigant Obligations issued by the Attorney-General: see Legal Service Directions 2005. However, only the Attorney General has standing to enforce the obligations thereunder; see Caporale v Deputy Commissioner of Taxation (2013) 212 FCR 220 at [50];
g)Whether Giacomo Caporale has filed a s.39B application or not in the Federal Court is not relevant to the current proceedings and not a ground for any adjournment of these proceedings. Further, this Court is entitled to take the view that the application to the Federal Court is no more than an abuse of process of the basis that:
i)The application to the Federal Court discloses no reasonable cause of action against the DCT and is “foredoomed to fail”, particularly in light of the fact that these same generalised allegations have been previously dismissed by both the Federal Magistrates Court then on appeal by the Federal Court; see Deputy Commissioner of Taxation v Caporale [2013] FMCA 5 and Caporale v Deputy Commissioner of Taxation (No. 2) [2013] FCA 473; and
ii)The application to the Federal Court has been made at the latest possible time in order to obtain a collateral benefit, being an adjournment of the current proceedings;
h)At the hearing on 1 July 2013, Mr O’Brien, in relation to the model litigant argument put forward by Ms Caporale, argued Ms Caporale herself, in her own bankruptcy appeal before Robertson J, ran the argument about who could enforce the Model Litigant Obligations and Robertson J rejected the application and stated that any enforcement of those guidelines is purely a right vested in the Attorney-General and not something that she could rely on or raise before the Court; see Caporale v Deputy Commissioner of Taxation (2013) 212 FCR 220 at [50]-[52];
i)Mr O’Brien submitted that, in relation to Ms Caporale’s argument in respect of filing an “originating application for relief under section 39B Judiciary Act 1903” (the “39B Application”) which is attached to the affidavit of Rosa Caporale sworn 26 June 2013 at “Exhibit A”, first that the 39B Application had not been filed by the time of the hearing. Second, this was a matter Ms Caporale raised in her own bankruptcy proceedings before Robertson J, where he said that the Federal Circuit Court does not have jurisdiction under s.39B of the Judiciary Act 1903 to consider any maladministration by officers of the Commonwealth. Mr O’Brien highlighted that the Court’s power under s.39B is a delegation of a power from the High Court only to the Federal Court. Mr O’Brien took the Court to the decision of Robertson J in Caporale v Deputy Commissioner of Taxation (No. 2) [2013] FCA 473 where he considered the argument in respect of maladministration. Mr O’Brien took the Court to [8] of the decision where his Honour stated:
8. Before me the appellant accepted that the Federal Magistrate (as his Honour then was) was not exercising jurisdiction under s 39B of the Judiciary Act 1903 (Cth). Neither, in hearing this appeal, is this Court exercising such jurisdiction. As to the significance of the source of jurisdiction even in a tax appeal in this Court see the decision of the Full Court in Gashi v Commissioner of Taxation (2013) 296 ALR 497.
j)Mr O’Brien submitted that his Honour Robertson J went through the 28 arch lever folders presented to the Court as evidence for the argument in respect of maladministration and, at [54] of Caporale v Deputy Commissioner of Taxation (No. 2) [2013] FCA 473 stated:
54. The appellant submitted that the Federal Magistrate was in error in failing to be satisfied by her that for other sufficient cause a sequestration order should not be made. The appellant’s contention was that the 28 arch lever folders which the Federal Magistrate admitted into evidence subject to relevance established “other sufficient cause” or would have established “other sufficient cause” if the Federal Magistrate had allowed the appellant further time to summarise the content of those folders. In my opinion, having considered the content of those folders, that submission fails even on the assumption, which for the reasons I have given I consider to be incorrect, that matters of consciousness maladministration could establish “other sufficient cause”. I agree with the Federal Magistrate that there is no substance in those materials which make out the appellant’s claim in this respect.
k)Mr O’Brien argued that as far as the model litigant argument can be advanced, it is irrelevant. In respect of the s.39B argument, Mr O’Brien submits that the application had not been filed in the Federal Court, and it was brought up at the last minute in order to seek a further adjournment.
Consideration
I have had the benefit of reading the following material which was handed up during the hearing:
a)Giacomo Caporale v Deputy Commissioner of Taxation [2012] FMCA 1178;
b)Deputy Commissioner of Taxation v Caporale [2013] FMCA 5;
c)Caporale v Deputy Commissioner of Taxation (2013) 212 FCR 220;
d)Caporale v Deputy Commissioner of Taxation (No. 2) [2013] FCA 473;
e)Legal Services Directions 2005, Appendix “B” – the Commonwealth’s obligation to act as model litigant;
f)Affidavit of Rosa Caporale sworn 26 June 2013;
g)Affidavit of Rosa Caporale sworn 23 June 2013; and
h)Affidavit of Jason Green affirmed 28 June 2013.
At the commencement of the hearing on 1 July 2013, Ms Caporale sought an adjournment of this matter for six weeks in which time she intended to pursue an unusual path of events, involving obtaining, from the ATO, documents confiscated in 2004 during a raid on the offices of the accounting firm retained by the Caporale family: Affidavit of Rosa Caporale sworn 26 June at [13]. Ms Caporale indicated to this Court that she believed that the ATO had breached its duties under the Model Litigation Obligations of the Legal Services Directions.
In the Affidavit of Rosa Caporale sworn 26 June 2013, Ms Caporale states at [8]-[17]:
8. On about 2000 the ATO contacted Rosa Caporale and stated that the ATO would be undertaking an audit on Giacomo Caporale.
9. On about 2002 the ATO issues default assessments in relation to Giacomo for the 1995- 2000 tax years.
10. On about February 2004 Giacomo Caporale filed and served an application for review at the Tribunal.
11. The matter along with 45 other related matters at the Tribunal was deferred to allow other matters that were considered of more importance by the ATO.
12. The matter of Giacomo Caporale was reinstated in about 2010.
13. The respondent was unable to retrieve source documents that the ATO had in its possession since about 2000 that belonged to the respondent that proved that the assessments were incorrect and/or excessive.
14. The respondent who had undertaken to prove the interest deduction component going back to 1984 sought more time to prepare the documents for the Tribunal.
15. The Tribunal refused and the matter was dismissed.
16. The respondent appealed at the Federal court and the matter was dismissed in May 2012.
17. The respondent maintains that natural justice has been denied as the basic right to obtain source documents that were in the possession of the ATO and confirmed in the Default Notice in 2002 meant that the applicant has been unable to discharge it burden of proof.
In Caporale v Deputy Commissioner of Taxation (No.2) [2013] FCA 473 his Honour Robertson J made the following observations at [44]-[46]:
44. It appears that the appellant also relied in this respect on a proposition that, on 3 October 2012 in a Local Court prosecution for non-compliance with a security bond demand notice, on her contention the ATO deliberately provided false and fraudulent evidence to the effect that a company called Sappia Investments Pty Ltd (a Caporale company) was involved in an “enterprise” in respect of a purported development at Dapto.
…
46. It was not explained to me how any concession by an officer of the ATO in those proceedings as to that company, if made, bears upon the present appeal. The proposition seemed to be that those proceedings demonstrated wrongdoing on the part of the ATO in relation to Sappia Investments Pty Ltd and this therefore established or tended to establish wrongdoing by the ATO in relation to the present appellant. I reject that submission. If allegations of abuse of power are to be made then they must be made specifically and clearly proved. I repeat the observations of the High Court in Commissioner of Taxation v Futuris Corp Ltd (2008) 237 CLR 146 at [60]:
Allegations that statutory powers have been exercised corruptly or with deliberate disregard to the scope of those powers are not lightly to be made or upheld.
In extensive oral submissions made by Ms Caporale on both days of hearing there was no further attempt to clarify for the benefit of the Court the nature of the documents alleged to be held by the ATO.
Ms Caporale informed the Court that in proceedings that she had commenced in the Federal Court under s.39B of the Judiciary Act 1903 (Cth), was a claim that the Commonwealth’s Model Litigant Obligations, which forms Appendix “B” to Schedule 1 of the Legal Services Directions made by the Attorney-General pursuant to s.55ZF of the Judiciary Act 1903 (Cth) had not been complied with by the DCT and this gave rise to legal rights to the extent that they purported to prevent those rights from arising or being enforceable in the courts. Ms Caporale argues that the only person, according to the ATO and the relevant legislation, who is able to follow up and enforce the Model Litigant Obligation on the ATO is the Attorney-General. Ms Caporale argues that this decision confirms that the only process that the Caporale family has available to them where they know or believe that the ATO has breached its duty under the Model Litigant Obligations or the Legal Services Directions 2005 more generally is to go directly to the Attorney-General.
Ms Caporale referred the Court to her affidavit of 26 June 2013 at [19] where she stated:
19. On the 14th June 2013 David Warren from the Attorney-General’s office stated to Rosa Caporale to the effect: “the Attorney-General has the statutory legal power and will complete the ATO to withdraw from any legal and other action that has resulted from facts that the ATO knew or knows to be facts and to be true. Send the documents and the facts directly to the Attorney-General and it will take the necessary steps to compel the ATO to act in accordance with its legal service direction and withdraw the matters.
In response to Ms Caporale’s claim, Mr O’Brien referred the Court to the affidavit of Jason Green, affirmed 28 June 213 which contains the following evidence:
1. I am a solicitor and officer employed in the Australia Taxation Office Legal Services Branch and am authorised to make this affidavit on behalf of the Applicant. The Applicant is a Deputy Commissioner of Taxation one of whose offices is at 52 Goulburn Street, Sydney in the said State.
2. On 28 June 2013 I telephoned David Warren, Acting Principal Legal Officer with the Office of Legal Services Coordination in the Attorney-General’s Department and had the following conversation:
Me: I am going to read you paragraph 19 of the affidavit of Rosa Caporale dated 24 June 2013 in which Ms Caporale states:
“On the 14th June 2013 David Warren from the Attorney General’s office stated to Rosa Caporale to the effect: “The Attorney General has the statutory legal powers and will compel the ATO to withdraw from any legal and other actions that has resulted from facts that the ATO knew and knows to be fact and to be true. Send the documents and facts directly to the Attorney General and it will take the necessary steps to compel the ATO to act in accordance with its legal services direction and withdraw the matters””
Is that you (sic) recollection of the conversation?
Mr Warren: No
Me: What is your recollection?
Mr Warren: She rang shortly after she received a letter… I was named as the contact officer on correspondence that was sent from us to Ms Caporale. The letter confirmed that there were no grounds to conclude that the Commissioner was in breach of the Legal Services Directions.
She rang to discuss the contents of the letter and suggested that she had a group certificate and that the ATO was forcing her to prove that the contents of the group certificate were correct.
I took her to mean that the group certificate involved something in the order of $5,000 for 1995 and that the ATO knew she had paid yet was requiring her to prove that she had paid even though they knew.
I drew her attention to Appendix B of the Legal Services Directions… paragraph 2(e)(i) and that agencies are not to require other parties to prove a matter which the Commonwealth or the agency knows to be true.
I offered no view that her allegation was correct. Rather, if the allegation is correct then substantiation is required. I advised her to provide any evidence to support the allegations and warned her that the mere presences of a group certificate was not enough to prove the ATO knew the tax was paid.
I said that if you can show me…
a) that the ATO knew tax on the group certificate was paid by her and that
b) the ATO is forcing her to prove that matter
…
If you allege this and evidence is provided we would consider that.
She has not provided us with anything. That is all I said to her.
Me: You are not aware of any evidence that indicated that the DCT has breached the Legal Services Directions?
Mr Warren: Correct.
3. On 28 June 2013 I received an email from David Warren which contained a letter that was sent by the Office of Legal Services Coordination to Ms Caporale. Annexed hereto and marked “JG1” is a copy of that email dated 28 June 2013 and attached letter dated 13 June 2013.
4. On 28 June 2013 I received a further email from David Warren. Annexed hereto and marked “JG2” is a copy of that email dated 28 June 2013
Annexed to the Affidavit of Jason Green affirmed 28 June 2013 at Annexure “JG1” is a letter from the Attorney-General’s Department addressed to Ms Rosa Caporale, which states the following:
Dear Miss Caporale
Thank you for your emails of 15 and 17 May 2013 to the Attorney-General, the Hon Mark Dreyfus MP QC, and to the Office of Legal Services Coordination. I refer also to the reply of 8 April 2013 sent by my predecessor, Mr Jeff Murphy, in response to your correspondence of 19 and 26 March 2013 (attached). You have concerns about compliance with the Legal Services Directions 2005 (Directions) by the Deputy Commissioner of Taxation, and the Australian Taxation Office (ATO).
You have requested that the Attorney-General require the Deputy Commissioner of Taxation to comply with the model litigant obligations, set out in Appendix B to the Directions, in relation to taxation-related proceedings to which you, and/or entities you represent, are a party. You have also requested that the Attorney-General approve you raising compliance with the Directions in those proceedings, pursuant to section 55ZG of the Judiciary Act 1903. As indicated in Mr Murphy’s response dated 8 April 2013, we passed your correspondence to the ATO for its response.
I have now considered the further information that you have provided to us, information that the ATO has provided to us in response to your complaint, and the 9 May 2013 decision in Caporale v Deputy Commissioner of Taxation [2013] FCA 427. I do not consider that any of this information establishes grounds upon which it would be appropriate for me to recommend to the Attorney-General that he should direct the Deputy Commissioner of Taxation as you have requested, or to approve you raising allegations of non-compliance with the Directions in proceedings.
To the extent that your correspondence alleges maladministration on the part of a Commonwealth agency, you may wish to raise your concerns with the Office of the Commonwealth Ombudsman, which can be contacted on 1300 362 072. Further information regarding the Commonwealth Ombudsman, including addresses of offices in most capital cities, is available online at
Thank you for bringing your concerns to our attention.
Ms Caporale’s argument is that the Petition before this Court should be adjourned to enable the finalisation of the matters involving the Attorney-General. To achieve that objective Ms Caporale indicated that she needed to issue a subpoena on behalf of her father, Giacomo Caporale, and give the ATO two weeks to produce in affidavit form the documents requested in the subpoena. On the delivery of that material, Ms Caporale could apply to the Attorney-General for him to access and review the contents and then issue directions to the ATO. The argument then proceeds that the Attorney-General has the effect of directing the ATO to either retract material in relation quantum or documents that should not have been allowed to have been used by the ATO (DCT) to obtain the judgment in the Supreme Court of NSW Common Law Division against Giacomo Caporale on 3 August 2012 in the sum of $851,524.17 which is the judgment that was relied upon to issue the Bankruptcy Notice and, subsequently, the Petition before this Court. Apparently, the result would be that the Attorney-General would direct the ATO to withdraw from these proceedings and the matter would be resolved without further steps needing to be taken in this Court.
This matter was set down for a half-day hearing and, in the absence of written submissions being provided on behalf of Mr Giacomo Caporale and combined with the introduction of a very unusual proposal for the issuing of subpoenas through this Court in its bankruptcy jurisdiction, insufficient time was available to complete the hearing on that date. Prior to adjourning I indicated to the parties that I would reconvene the hearing on 10 July 2013 and in the intervening period indicated that I would read all of the previous judgments that had been handed up so that I could gain a better understanding of what had transpired in the past. I indicated that at the next hearing if I believed that there was any avenue for further evidence to be raised on behalf of Giacomo Caporale I would then grant time for that to be undertaken. Alternatively, if I was not satisfied of that necessity I would proceed with the formal steps required to make a sequestration order. Further, the request to issue subpoenas to the ATO was not granted as I wished to fully review the transcript covering Ms Caporale’s oral submissions and affidavit evidence.
On resumption of the hearing on 10 July 2013, I indicated to the parties that I had read the series of decisions handed up on the previous occasion (identified at [22] above), similarly, I had reviewed material handed up during the hearing, including Ms Caporale’s Affidavit. I acknowledge that Ms Caporale’s father is a self-represented litigant and the difficult position that puts him in, however, Ms Caporale’s Affidavit sworn 26 June 2013 and the vast majority of the material it contains is more appropriately characterised being in the form of submissions, rather than affidavit evidence.
Ms Caporale informed the Court that she had misunderstood the instructions at the end of the previous hearing and believed that at this resumption, the Court was going to set a timetable to provide further evidence and that she still wished to issue a more specific subpoena in order to obtain some of the documents in the possession of the ATO for presentation to the Attorney-General. She also wished to subpoena a witness, Mr Greg McGuiness, in relation to an amount of $200,000. Neither the Court nor Mr O’Brien, appearing for the DCT, was aware of this request. Ms Caporale indicated to the Court that she was relying on Ground 6 of the Notice of Opposition in respect of the matter being adjourned until other matters in various jurisdictions were going to be heard. Again the precise nature of what proceedings were underway and in what jurisdiction was not brought to the Court’s attention. When Ms Caporale was asked whether applications under s.78B of the Judiciary Act 1903 had been filed with the Attorneys-General of the States and the Commonwealth, she indicated that nothing had occurred and she was essentially waiting for directions from this Court before proceeding.
Ms Caporale submitted to the Court that it was essential that this matter be adjourned so Giacomo Caporale would have rights on his own and be able to prepare and issue the subpoenas. Ms Caporale indicated that she was bankrupt and that she had lost her right to initiate proceedings. Consequently, it was vital for this matter to be adjourned without a judgment making her father bankrupt to allow the family to proceed with gaining the documents lodged in the application for review under s.39B and continue with seeking the subpoena for production of documents to the ATO for delivery to the Attorney-General for his intervention. If the adjournment was not granted it would prevent her father from prosecuting these proceedings and deny him natural justice. Ms Caporale submits that if her father becomes bankrupt there is no possibility for him to continue these proceedings as she has been prevented by her trustee who has refused to continue any proceedings initiated by her. Ms Caporale claims that her father would be denied natural justice in getting the specific information which would show maladministration on the part of the ATO.
I indicated to Ms Caporale that this Court was sitting in its bankruptcy jurisdiction, but was being asked to issue subpoenas not directly related to the Petition before the Court. I acknowledge, ultimately, if the course Ms Caporale was outlining was pursued and the Attorney-General did seek to instruct the ATO to withdraw proceedings, the effect of such a direction would require the ATO/DCT to return to the Supreme Court of NSW and set aside the judgment founding the Bankruptcy Notice and the Petition, so that each subsequent step could be set aside or dismissed. Alternatively, Ms Caporale may request this Court to go behind the original Supreme Court decision founding the Petition, but this does not appear to be pleaded nor would this Court engage in such an exercise on the basis of what is before it. As I have indicated elsewhere in this decision, no appeal has been filed against the decision of the Supreme Court in proceedings No. 2011/00245686 which is ultimately the basis on which the bankruptcy notice was issued, nor has there been any successful challenge to the Bankruptcy Notice.
I now come to the request being made by Ms Caporale in respect to this Court issuing a subpoena to the ATO. For the purpose of this analysis I put to one side whether the DCT and the ATO are in effect the same entity. In broad general terms a subpoena to produce documents can be issued on a third party or parties to the litigation. Failure to comply with the subpoena is contempt of court, however, a subpoena to produce may not be complied with if the person or entity who has been subpoenaed seeks to have the subpoena set aside as an abuse of process on the ground that it lacks a legitimate forensic purpose or appears oppressive or has an improper purpose.
Under r.15A.05 of the Federal Circuit Court Rules 2001 (Cth), there is no requirement for leave to a party to issue up to five subpoenas in a proceeding. This is unlike discovery which requires a declaration under s.45(1) of the Federal Circuit Court Act 1999 (Cth) to allow discovery on an application of a party or on the Court’s own motion (r.14.02). In respect of the issue of subpoenas, under r.15A.02 the Court or a Registrar may, on the Court or on the Registrar’s own initiative or at the request of a party, issue:
a)A subpoena for production;
b)A subpoena to give evidence; or
c)A subpoena for production and to give evidence.
A subpoena should be set aside for the following reasons:
a)It is a fishing expedition;
b)The documents sought have not been sought for a legitimate forensic purpose;
c)The documents sought are of no conceivable relevance to the proceedings;
d)The subpoena amounts to a discovery against a third party;
e)The subpoena is oppressive; and/or
f)The subpoena is unintelligible in its form.
Each of these defects renders a subpoena an abuse of process (Botany Bay Instrumentation & Control Pty Ltd & Anor v Stewart & Anor [1984] 3 NSWLR 98 at 100-101).
A subpoena without legitimate forensic purpose is an abuse of process and its recipient can apply to the Court to have it set aside. The test for determining whether a subpoena has a legitimate forensic purpose was considered in Attorney-General of New South Wales v Chidgey [2008] NSWCCA 65. The test is a two-step process in that before access is granted the party issuing the subpoena must:
a)Identify a legitimate forensic purpose for which the access is sought; and
b)Established that it is “on the cards” that the document will materially assist in the proceedings.
In normal circumstances it is necessary for a party who issues the subpoena to identify expressly and precisely the legitimate forensic purpose for which access to the documents is sought (R v Saleam [1999] NSWCCA 86; Chidgey (supra)).
The argument being advanced by Ms Caporale is that the documents are not being sought to be used in proceedings before this Court, rather, to forward them to the Attorney-General on the pretext that if the Attorney-General finds evidence of the ATO breaching the Legal Services Directions 2005, the Attorney-General will direct the ATO to withdraw from these proceedings. This argument immediately presents major problems for Ms Caporale as indicated in the affidavit of Jason Green set out at [29] above which conveyed a discussion that Mr Green had with David Warren of the Attorney-General’s Department and contradicts the affidavit evidence of Ms Caporale, set out at [28] above. I also note that a very similar argument has been advanced by Ms Caporale before his Honour Robertson J unsuccessfully. A request to this Court to allow the issue of such a subpoena would, in effect, be futile.
I indicated to Ms Caporale that there is another threshold problem that she had to overcome in her adjournment application. It has been long established in the bankruptcy jurisdiction that if adjournments are sought because there are matters before other courts, there has to be some evidence before the court exercising the bankruptcy jurisdiction the proceedings that are the basis for seeking an adjournment to allow their resolution, are actually on foot. However, the proceedings that Ms Caporale is relying upon to justify the adjournment are nothing more than proposals as nothing has been filed in this Court or any other jurisdiction that this Court has been made aware of to support an adjournment being granted so that they can be resolved as they may impact the outcome of the proceedings in this Court.
When faced with this question Ms Caporale acknowledged in respect of any discussions with David Warren of the ATO and addressed in the affidavit of Jason Green at [29]-[30] above, in fact, concerned her own previous proceedings. Subsequently, a sequestration order was made against her estate on 4 February 2013: Deputy Commissioner of Taxation v Caporale [2013] FMCA 5. In the matter of Caporale v Deputy Commissioner of Taxation (2013) 212 FCR 220 before his Honour Robertson J which were commenced under s.39B of the Judiciary Act 1903 (Cth), a claim for interlocutory relief was sought in the following form:
2. The claim for interlocutory relief provides some indication of the applicant’s purpose, those claims being:
…
3. That the court order and consent to the Model Litigant Provisions under Legal Services Directions issues and in relation to the conduct of the Deputy Commissioner of Taxation to be raised and admitted in any legal proceedings relating to the applicant.
…
In that matter, Ms Caporale proposed to proceed with the planned approach to the Attorney-General where she was relying on a group certificate already acknowledged by the ATO during settlement negotiations before the AAT that there was a tax payment. This information would be brought to the Attorney-General’s attention who would identify behaviour by the ATO in breach of the provision of the Model Litigant Obligations of the Legal Services Directions and consequently direct the ATO to withdraw the action.
Ms Caporale acknowledges this issue has no relation to with her father’s (Giacomo Caporale) proceedings who is the party named in the Petition before this Court, but she nonetheless intends to adopt the same approach in respect of her father’s circumstances. Ms Caporale indicated, for the sake of formality, she undertook to file and serve the affidavit evidence that she had been discussing within seven days.
This is unacceptable as the Petition served on Giacomo Caporale was issued back in April 2013. A creditor’s petition can only be issued after there has been a bankruptcy notice served on the debtor and not complied with. Now at this late stage this proposal is being advanced which is not directly related to these proceedings, but rather a side issue attempting to invite the Attorney-General to intervene under the provisions of the Legal Services Directions which, as I have indicated elsewhere in these proceedings, is an unusual and novel approach as the basis for either setting aside or adjourning a creditor’s petition.
For the sake of completeness I refer to Mr O’Brien’s submission at [18] above which sets out the three potential grounds upon which the Court may exercise its discretion not to make a sequestration order. Initially considering the issue of “going behind the judgment debt”, although not specifically stated, it appears that Ms Caporale is advancing an argument that she is endeavouring to go behind the judgment/orders of the Supreme Court of New South Wales with a view to challenging the assessments on which that decision was based. In reality this does not appear to have been considered by Ms Caporale, but instead by this unusual approach of seeking intervention by the Attorney-General issuing an instruction to the DCT to withdraw the Petition. In the face of the evidence, given by an officer within the Attorney-General’s Department the success of this intervention appears to be either very remote or non-existent. The argument is advanced as a straight forward procedural step with a positive intervention by the Attorney-General and his subsequent direction to the DCT, but this is clearly not what would occur. I am satisfied that this approach cannot be sustained.
The second issue relates to Giacomo Caporale’s solvency. This issue has simply not been addressed in the written or oral submissions or affidavit evidence before the Court and cannot be sustained.
In respect to “other sufficient cause” I agree with the detailed written submissions prepared by Mr O’Brien set out above at [22]. Again, the only material before the Court is this novel proposition, advanced by Ms Caporale in respect of the intervention by the Attorney-General on the basis of maladministration within the ATO. This cannot be sustained and should be dismissed.
Consequently, the Notice of Opposition should be dismissed with costs awarded to the DCT and, subject to the satisfaction of the formal requirements, a sequestration order should be made against Giacomo Caporale.
I certify that the preceding fifty (50) paragraphs are a true copy of the reasons for judgment of Judge Lloyd Jones
Associate:
Date: 21 February 2014
16
5