Deputy Commissioner of Taxation v Davidson
[2000] QDC 469
•19 December 2000
DISTRICT COURT OF QUEENSLAND
CITATION: Deputy Commissioner of Taxation v. Davidson [2000] QDC 469 PARTIES: DEPUTY COMMISSIONER OF TAXATION
Plaintiff
v
DESLEY ANN DAVIDSON
DefendantFILE NO/S: D1499 of 2000
DEPUTY COMMISSIONER OF TAXATION
Plaintiff
v
JON DOUGLAS FAULKNER
DefendantD1785 of 2000
DIVISION: District Court PROCEEDING: Claim ORIGINATING COURT: Brisbane DELIVERED ON: 19 December 2000 DELIVERED AT: Brisbane HEARING DATE: 14 September, 27 October, 4, 8 December 2000 JUDGE: Judge Robin Q.C. ORDER: The Institute of Taxation Research Pty Ltd be added as a Defendant.
The plaintiff have no costs of its application heard on 6 September 2000 or of the hearing on 27 October 2000.
The defendants pay the plaintiff’s costs otherwise, the Institute’s liability being limited to costs after May 2000.
The plaintiff’s costs of its summary judgment application up to and including the hearing on 14 September 2000 are to be assessed on the indemnity basis.CATCHWORDS: Costs – successful plaintiff applies to join as additional defendant an organisation which actively promoted “constitutional defences” – such defences judicially condemned several times before assistance to present defendant(s) was found to have been given – joinder ordered – certain costs the plaintiff had advised it would seek on the indemnity basis ordered to be paid by original and added defendant(s) on that basis – proof the original defendants could not pay held not required – Uniform Civil Procedure Rules r 704. COUNSEL: Mr C Coulsen for the plaintiff
Mrs A Julian-Armitage for the defendantSOLICITORS: Australian Government Solicitor for the plaintiff
Rea & Sockhill for the defendant
In these two actions which have been running together for most of their history, the plaintiff has already obtained summary judgment against Mrs Davidson and Mr Faulkner. Costs issues are now to be decided, including whether the plaintiff should have costs assessed on the indemnity basis and whether the Institute of Taxation Research Pty Ltd (ITR) should be joined as a defendant for the purpose of being ordered to pay costs to the plaintiff – on the basis that it devised and assisted and encouraged the defendants to pursue unmeritorious “constitutional” defences.
It is convenient to set out a chronology of events in the court:
13.4.2000 Claim against Mrs Davidson (1499 of 2000) filed
4.5.2000 Claim against Mr Faulkner (1785 of 2000) filed
1.6.2000 Notice of Intention to Defend in 1785 of 2000 filed, with Defence
6.6.2000 Notice of Intention to defend in 1499 of 2000 filed, with Defence
31.8.2000 Summary judgment applications filed returnable 14.9.2000
6.9.2000 Plaintiff’s ex parte “special” applications for shortening of time to permit service out of Queensland on ITR of subpoenas duces tecum
13.9.2000 Summary judgment applications by the plaintiff (4 in all) against 2 other defendants adjourned to 14.9.2000
Defendants notify Commonwealth and State Attorneys-General of
constitutional issues both pleaded and unpleaded under s 78B of the Judiciary Act 1903
14.9.2000Summary judgment applications against Mrs Davidson and Mr Faulkner argued, decision reserved. Other issues (setting aside of subpoenas directed to ITR and joinder of ITR for purposes of obtaining a costs order against it) and other summary judgment applications in other proceedings adjourned to 27.10.2000.
22.9.2000Reasons published to parties for the court’s view summary judgment ought to be granted against Mrs Davidson and Mr Faulkner – pronouncing of orders deferred in case any Attorney-General wished to intervene
27.10.2000All matters which had been adjourned to this day adjourned further to 4.12.2000 at the suggestion of the parties in expectation that Callinan J might resolve ITR issues in a similar matter then part heard before him in the High Court
4.12.2000Matters involving other taxpayers adjourned to a date to be fixed, on the basis the Commonwealth Attorney-General wished to remove one to the High Court to test a constitutional point (validity of Commonwealth registration of corporations incorporated under State laws). In the Davidson and Faulkner matters,
(1) summary judgments were ordered, with costs questions reserved
(2) ITR applications to set aside subpoenas were heard and refused
(3) documents produced under the subpoenas were made available to the parties
(4) ITR was offered the opportunity of an adjournment to consider assembling evidence to counter inferences that might be open upon such documents that it was running the defences
8.12.2000Resumed hearing of ITR joinder and costs issues, with affidavits of ITR’s director Mr Henke read. Decision reserved.
The jurisdiction to award indemnity costs against litigants who run cases doomed to failure is now well established. Well known authorities include Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 (Woodward J) and Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 (Sheppard J). In the field of taxation, Hayne J dealt with costs in Helljay Investments Pty Ltd v Deputy Commissioner of Taxation (1999) HCA 56 (7 October 1999) as follows:
“Costs
The respondent and the liquidator both sought special orders for costs. Each submitted that costs should be taxed on an “indemnity basis.” Further, each submitted that the order for costs should be made against the solicitors who instructed counsel for Mr Murphy and who had issued the Notice of Motion for removal, or against Mr Murphy alone. As I pointed out in the course of argument, no formal notice of application was given to the solicitors or Mrs Murphy. The only notice given was by way of submission in a supplementary summary of argument filed and served shortly before the matter came on. In those circumstances I am not prepared to make any order against the solicitors or against Mrs Murphy without proper notice of the application first having been given to the persons concerned.The respondent submitted that the case for removal was so obviously untenable (in the face of the decision in Joosse ((1998) 73 ALJR 232) and similar decisions in this and other courts) that it should not have been brought. In addition, so the respondent’s argument proceeded, its pursuit in face of the order for winding up, and the expressed opposition of the appointed liquidator, gave further reason to make a special order for costs.
As I have indicated earlier, on its face, the application for removal was prosecuted in the name of Helljay. But it is clear that the Court has power to make an order for costs against a person not a party to the proceeding.
There can be no doubt that Mr Murphy played an active part in prosecuting the application. As things stand, Helljay has been found to be insolvent and, in those circumstances, I have no hesitation in concluding that the costs of the unsuccessful prosecution of the application for removal should not fall on the company, and thus its creditors. This is a case in which it is appropriate to order Mr Murphy to pay the costs. The question then becomes on what scale should those costs be ordered?
The respondent’s contention that the application was obviously untenable was cast in terms that might be said to have depended upon accepting the correctness of my decision in Joosse. But there is a more fundamental reason for concluding that the application was untenable. The central propositions which it was sought to advance in support of removal were contentions which, if accepted, would have invalidated not only the various taxation laws that were mentioned in the application, but also the Corporations Act 1989 (Cth). Thus the very existence of the corporation which Mr Murphy seeks to preserve by the proceedings he has instituted in this Court and elsewhere, would have been destroyed by acceptance of the arguments he sought to advance. This, taken with the course of decisions to which the respondent referred, and the nature and content of the arguments which it was sought to advance in favour of the allegations of invalidity, all combine to demonstrate that the application for removal was untenable and obviously so. That being so, and Mr Murphy having continued to prosecute the application brought by Helljay despite the expressed attitude of the liquidator, this is a case in which the award of costs, both to the liquidator and to the respondent, should go beyond the ordinary party and parity basis and extend to indemnity costs…”
Helljay is an illustration of costs being ordered against a non-party.
The foregoing decisions concerned orders for indemnity costs made against initiators of hopeless proceedings. I would expect the considerations to be somewhat different where unmeritorius or doomed points are run by way of defence for a litigant who does not wish to be in court at all, although “defences” in particular categories, such as baseless allegations of fraud, may not be distinguishable. I note (but have reservations about accepting) Mr Coulsen’s submission, for the plaintiff, that, in the “tax” cases, at least, it may be appropriate to regard certain proceedings which appear to be offensive (such as an application to set aside a statutory notice of demand, non-compliance with which would constitute a ground for winding up, or an application to remove a matter to another court) may be regarded as defensive. There were no such nice considerations in Deputy Commissioner of Taxation v Levick (1999) FCA 1580 (1.12.99). Mr Levick, a solicitor, was joined as a respondent and ordered to pay certain defined costs in a bankruptcy petition on a solicitor and client basis, and also the costs of his being joined, on a party and party basis. I agree with Hill J that the jurisdiction of a court to order costs against a person who is not a party to the proceedings (and perhaps a solicitor in particular) is “one that must be exercised sparingly, having regard to all the circumstances of the particular case.” Hill J began his conclusion as follows:
“The discussion of the arguments put (and the same would be true of the arguments raised before Hayne J in Joosse to the extent they were foreshadowed as intended to be raised in the present proceedings) demonstrates that they are untenable – indeed one might even say of them that they were nonsense. If it matters it can be inferred that both Mr Levick and Mr Fitzgibbon of counsel knew that this was so when the moment that a third party cost order was raised they immediately expressed the desire to withdraw, presumably so as to avoid the third party order. This hardly displayed any confidence in the arguability of the matters which they previously indicated they intended to advance.
It is not as if these arguments would have originated from the client. They clearly originated with the lawyers. It is obvious enough that they were intended to delay as long as possible the making of a sequestration order against Mr Quinn. But it is not necessary to go that far to justify the making of an order that the solicitor pay the costs of the Deputy Commissioner on an indemnity basis occasioned by the raising of these matters. There is, as well, an ethical question which arises where solicitors or counsel advise their clients to pursue spurious arguments before the Courts. The problem would be, to say the least, even more serious were a solicitor or barrister to participate in advertising to persons with potential income tax liabilities that advice was available how to escape those liabilities upon payment of a fee which then encouraged the making of arguments before courts which were bound to fail. That such advertising may have been undertaken (I do not suggest that Mr Levick did so, for I do not know whether he did or did not) emerges clearly enough from the judgment of the Court of the Supreme Court of Queensland in Professional Nominees Pty Ltd v Walsh [1998] QSC CA 253 and see Media Release dated 3 Mary 1999 issued by the Commissioner of Taxation: “You pay for wacky advice”
Although I do not think that it is necessary that Mr Levick be joined as a party for the Court to have power to make a costs order against him, I note that the High Court in Knight((1992) 174 CLR 178) at 203 suggested that this might be a convenient course….”
The next authorities referred to, chronologically, involve ITR. In Money Tree Management Services Pty Ltd v The Deputy Commissioner of Taxation (No. 2), Supreme Court of South Australia, Doyle CJ 20 March 2000, ITR was joined as a party and ordered to pay the defendant its costs of the proceedings on an indemnity basis. The taxpayer company had already been ordered to pay the defendant’s costs of a summons to set aside a statutory demand on an indemnity basis. According to his Honour’s reasons:
“This order was made on the basis that it should have been clear to Money Tree, or at least to its advisers, that the submissions put were manifestly untenable and that there was no prospect of the proceedings being successful.”
ITR did not appear before the Chief Justice, who was satisfied it was aware of the application involving it. The application failed insofar as it sought similar relief in relation to the company’s solicitor, Mr Kerin. Doyle CJ was satisfied (as I am here) that ITR promotes arguments of the type advanced by the taxpayer and apparently provides those arguments to its taxpayer clients in exchange for a fee. The court there had the benefit of evidence from Ms Matthew, a director of Money Tree, who said ITR had been paid a flat fee of $6,000 in lieu of a 15 per cent “success fee” – the court was not necessarily satisfied that a success fee would have been avoided had the original application been successful and tax been saved. Doyle CJ found that:
“It was ITR that recommended that Ms Matthew instruct Mr Kerin to act as solicitor for Money Tree. It was also ITR that paid Mr Kerin’s fees. … It is plain that ITR is closely involved in the action in this Court and that Ms Matthew, and indeed Mr Kerin, had acted according to advice and information given to them by ITR. … The arguments put forward … have been provided to Ms Matthew by ITR.”
Doyle CJ expressed his conclusion (p. 4-5 of the reasons):-
“16.In my view there has been an abuse of process by ITR in encouraging the commencement and continuation of this action when it should have been clear that the prospects of success, in light of cases such as Helljay and Joosse, were non-existent: …
18.The abuse of process in this case is compounded by the unbalanced, and at times plainly inaccurate, manner in which ITR represented the legal position to its ‘clients’ in the promotional material distributed by them.
26.In my view ITR has a real and continuing connection with this litigation and has engaged in conduct amounting to an abuse of the Court’s process. In those circumstances, and given that ITR was adequately forewarned by the Commissioner that he intended to apply for costs against it, I consider that it is appropriate to make the orders sought against ITR.”
Subsequent to the Money Tree case, on 5 May 2000, Gummow J made similar orders against Mr Levick in McKewins Hairdressing and Beauty Supplies Pty Ltd v Deputy Commissioner of Taxation (2000) HCA 27. ITR is mentioned in Gummow J’s reasons:
4.“The effect of Mr Levick’s evidence in this Court is that, in proceedings respecting McKewins, he has received instructions, including the text of two documents filed on 29 July 1999 and a third on 12 November 1999, subject to checking for typographical errors and the like, not from the directors of the company but from a body based in Melbourne. This is called the Institute of Taxation Research (“the ITR”). Mr Levick gave some information concerning the ITR. In his oral evidence he said:
“I’ve met a number but not all of the directors. They are engaged in, as I understand it, research into the Constitution with particular regard to taxation. They have also, or members of that group have also prepared and, I believe, filed a two volume application relating to these issues with a number of United Nations bodies and that was filed, I am told and verily believe, on 1 September last year.”
It was to the ITR that Mr Levick would look for his fees if he has not already billed the ITR in relation to the proceedings in this Court. He has a number of matters on which instructions are received from the ITR.
…
11.Order 27 r 1 (1) of the High Court Rules states:
“A party to an action or proceeding may, by notice in writing, wholly discontinue or withdraw his action, counterclaim or defence as against another party, or withdraw part or parts of his claim or cause of complaint, counterclaim or defence.”
The document I have just described was ineffective to bring about the consequences spelled out in O 27. Mr Levick was not the applicant for removal. The applicant was stated to be McKewins but Mr Levick had been retained to take the steps he had taken by a third party, a stranger to the litigation, the ITR.
15.There remains the question of costs. The Deputy Commissioner of Taxation should not be left without any prospect of recouping his costs. I make order 1(a) in the notice of motion filed on 2 February 2000. Mr Levick is added as the second respondent to the notice of motion for removal under s.40 before that motion is dismissed. Joinder is not a necessary course but it was undertaken by Hill J in Levick and it is prudent to follow it [10]. I would not add Mr Keith McKewin, a director of McKewins, as third respondent, I am not satisfied he has personally been served with the necessary process, nor is it clear on the present state of the record that he was more than a lay person who, so far as he was involved, was drawn in by the efforts of Mr
Levick’s instructor, the ITR.
…
17.In all the circumstances, not only should Mr Levick bear the costs of the Deputy Commissioner but this should be on an indemnity basis [11].”
The McKewins’ company was in liquidation; in Money Tree, the company was not, but in paragraphs 34 to 38 of his reasons, Doyle CJ advanced what I respectfully find a convincing argument against the existence of any requirement for costs to be ordered against a non-party that it be shown the party is impecunious – in summary, the order may be made for “punitive” reasons, not only for compensatory ones.
While I would not regard evidence mentioned in the reasons in McKewins or Money Tree as available as evidence before this court, from the point of view of implicating ITR (in particular it would be wrong to assume that contractual arrangements or arrangements for instructing solicitors are reflected in the cases of Mrs Davidson and Mr Faulkner), it would be completely unrealistic to ignore the outcomes in those matters. I am prepared to regard ITR as aware of those outcomes and of the reasons given in support of them. ITR’s actions subsequent to them may be regarded as taken deliberately against the background of those two decided cases.
Except as background steps taken by ITR in connection with the present defendants’ affairs have no relevance. Those steps include the submission to the Australian Tax Office of notices of objection to assessments (raising the familiar “constitutional” grounds) and attempts, with differing degrees of success, to be recognized by the ATO as the taxpayer’s agent, with whom the ATO was obliged to communicate. In my opinion, it is only the steps taken by ITR once litigation has to its own knowledge commenced, that can be examined in considering whether ITR is guilty of any abuse of process.
I have indicated above the limited use that may be made of the McKewins and Money Tree decisions. However, there is evidence before this court of ITR’s involvement in Deputy Commissioner of Taxation v Hopebridge Pty Ltd (In Liquidation) S 5876 of 1999 in the form of an affidavit of that company’s director, Mr Bond, a copy of which is Exhibit SH10 to the affidavit(s) of Sue-Ellen Hollyock filed in these matters on 8 September 2000. Mr Bond’s affidavit refers to a statutory notice of demand issued by the plaintiff against his company in May 1999 and continues:
“Immediately after receiving that notice I made an appointment to see Leanne Lynam. I met with Leanne shortly thereafter and her recommendation to me was to engage the services of Institute of Taxation Research Pty Ltd (‘ITR’) whose local agent was Rae Sockhill, Solicitors of Buderim. Several days after my meeting with Leanne I called into Mr Sockhill’s office at Buderim and signed an agreement with the Institute of Taxation Research Pty Ltd. Now produced and shown to me and marked with the letter ‘B; is a true copy of that agreement. While visiting Mr Sockhill he said words to the effect that ‘ITR [would] defend the matter on the Company’s behalf as it had done successfully on many previous occasions with other companies’. Mr Sockhill stated words to the effect that when the agreement (Exhibit ‘B’) was signed and the ITR fee of $6,000 was paid, ‘ITR [would] defend the matter in the Supreme Court and whatever decision was made would be appealed to the High Court’ I asked Mr Sockhill what would happen then and he said words to the effect ‘it will make the matter go away and the ATO never pursue such matters any further once they get to the High Court.’”.
(It may be noted, for what it is worth, that the notices of intention to defend and defences have a common typeface and setout – also shared with previous documents such as notices of objection. That the defences are closely related seems inescapable, having regard to interesting features they have in common, such as a reference in paragraph 3 to “jurisdiction of the District of Queensland” whereas paragraph 4 (more correctly) refers to “jurisdiction of the District Court of Queensland”. The expression “in his defence”, for example, in paragraphs 6 and 7 of Mr Faulkner’s defence, remains in Mrs Davidson’s but both documents use the more neutral “in Defence” in paragraph 8. Another interesting feature is that “Governor” has a capital “G” in paragraph 9(v)(iii) in both pleadings, otherwise a lower case “g” is used.)
Further pertinent information in Ms Hollyock’s affidavit(s) is in Exhibit SH3, apparently a standard form letter on Rea & Sockhill letterhead bearing a reproduced signature by Mr Sockhill which can only be construed as an encouragement to clients or others to whom it was addressed to become clients of ITR. (Mr Sockhill’s status as “agent” of ITR has subsequently been confirmed in affidavits by its director Mr Henke, as referred to elsewhere.)
The pleaded and unpleaded “constitutional” defences raised by Mrs Davidson and Mr Faulkner were identical, and, like the notices of objection which preceded them, appear to have a common origin in material promulgated by ITR. Those considerations, and the material introduced by Ms Hollyock would seem to me a slight (and probably insufficient) basis for granting the relief sought against ITR. However, further material produced to the court by ITR under subpoenas has been tendered, after my rejection of ITR applications to have those subpoenas set aside. There has been correspondence from ITR to the registry indicating that limitations of time might have precluded the location and forwarding of further material. What has been produced varies as between Mrs Davidson’s matter and Mr Faulker’s. While the manner in which the parties have conducted the litigation (at least since 14 September 2000) would make it reasonable to consider the material in both subpoena responses together, I think the court ought to be careful to give separate consideration to what ITR is shown to have knowingly done in each proceeding, approached separately. It is convenient to analyze the two groups of documents produced in a way that identifies – by use of the same descriptive letter – documents of the same description.
ITR produced to the court, presumably from its own records, copies of the following documents relating to the proceeding against Mrs Davidson:
A. Statement of claim in D 1499 of 2000 filed 13.4.2000;
B. A covering facsimile message from the defendant to ITR of 3 May
2000 advising service had occurred that day, enclosing a copy of the
statement of claim and requesting “your (ITR) Reply to ATO on this matter” – and advising the defendant’s fax and phone numbers;
C. The claim in D1499 of 2000, filed 13 April 2000;
D. Defendant’s fax to ITR of 20 May 2000 enclosing “C” above;
E. Unsigned notice of intention to defend and defence;
H. Summary judgment application (returnable 14 September 2000) filed 31 August 2000 and supporting affidavit of Lisa Dawn Jackson and Exhibits;
I. Covering letter dated 1 September 2000 from plaintiff’s solicitor to Mrs Davidson by way of service of the above, threatening a claim for indemnity costs against the defendant, ITR and any solicitor if the constitutional “defences” are persisted in;
K. “Urgent” facsimile of 8 September 2000 from Gordon Davidson to ITR enclosing “H” and “I” imprinted “15.00” (hours) and stating:
“Also faxing a copy to Bruce Sockhill after sending this. Will ring you later.”
L.Signed defence, apparently annexed to the subpoena, in which page 6 appears to be missing;
M. ITR letter of 7.9.2000 to Mr Bruce Sockhill apparently advising ITR’s response to the subpoena;
Q. Rea & Sockhill’s letter to ITR of 2 October 2000 requesting payment of town agent’s costs under file MCY 432 noted “A/C Passed 4/10/2000”.
(It is plain that the file maintained by ITR in relation to Mrs Davidson’s affairs was designated MCY 432, the letters most likely indicating Maroochydore.)
The documents produced by ITR to the court in relation to Mr Faulkner, which typically bear a file designation BNE 402, were as follows:
A. and C. Claim and statement of claim in D 1875 of 2000, filed 4 May 2000
E. Unsigned notice of intention to defend and defence
F. Signed notice of intention to defend and defence, both dated 24.5.2000 and filed 1 June 2000
G. Notice of appointment of solicitor (of the plaintiff) filed 15 August 2000 and the solicitor’s letter to Mr Faulkner enclosing the same (dated 18 August 2000).
H. Plaintiff’s summary judgment application (returnable 14 September 2000) filed 31 August 2000 and supporting affidavit of Lisa Dawn Jackson and exhibits.
I. Covering letter of the plaintiff’s solicitor of 1 September 2000 to Mr Faulkner enclosing the items in “H” by way of service noted “Received 7.9.00 3.45 pm” and “Faxed to Bruce Sockhill”. This letter threatens a claim for indemnity costs against the defendant, ITR and any solicitor involved if the constitutional “defences” are pursued. Imprints on the material on “H” and “I” indicate it went through the facsimile machine of Westside Stationery at 2.29 p.m. on 7 September 2000.
J. Further signed defence.
L. Further signed copy of the defence, apparently attached to the subpoena.
M. ITR letter of 7 September 2000 to Mr Bruce Sockhill, apparently advising the ITR response to the subpoena.
N. ITR letter of 13.9.2000 to the Registrar referring to D 1785 of 2000, D1499 of 2000 (against Mrs Davidson) and proceedings against another taxpayer and difficulties in complying with new subpoenas. ITR’s own file numbers for each of the taxpayers are noted on the letter.
O. Counsel’s report to Rea & Sockhill regarding hearings in the above (and other) matters on 13 and 14 September 2000
P. ITR letter of 25 September 2000 to Mr Faulkner advising him of the results to that stage of the hearing on 14 September 2000.
Q. Rea & Sockhill’s letter of 2 October 2000 to ITR requesting payment of town agent’s costs under file BNE 402 – noted “A/c passed 4/10/2000”.
Having inspected the material described in the preceding two paragraphs during a hearing on 4 December 2000, I was anxious to allow ITR an opportunity to present evidence, if so advised, without which the court might readily draw inferences from the subpoenaed material that it was knowingly and actively involved in putting forward the ineffective defences. I gave reasons indicating my interest in the defendants’ solicitors’ requests to ITR for payment of legal fees incurred by the defendants, reporting both to and by ITR of developments in proceedings, Mrs Davidson’s apparent request to ITR for a defence and the presence as well of unsigned as well as signed notices to intention to defend and defences. I indicated that I might well “draw conclusions against its interests which may be seen as bolstered by the Institute’s silence.” Reasons given for the orders made on 6 September, which included a public interest in exploring whether ITR was intervening in the proceedings in an inappropriate way, had been made available to Mrs Julian-Armitage.
On 8 December, Mrs Julian-Armitage read in each proceeding an affidavit by Mr Henke, a director of ITR. He describes it as a non-profit organization established in July 1998 associated with persons interested in issues of the kind raised by the defendants, and claiming justification based on its view that the incidence of tax actually paid by proprietors of small businesses is unjust and socially destructive. ITR was established, among other reasons, to be a vehicle to challenge the legal foundation of Australia’s taxation system. Those who become “clients” pay a “consultancy fee” and obtain assistance in liaising with the ATO and “regular updates as to the results of research”. Mr Henke says ITR does not act as a lawyer, and “once a client’s matter becomes litigious, … ceases to act … invariably recommends … the client … engage the services of a solicitor.” Of each of the present defendants, he records his understanding that each acted personally in lodging a defence, “however, later engaged the services of Rea & Sockhill, Solicitors of Buderim (whose) principal … Bruce Sockhill, is an agent of the Institute and initially introduced the defendant to the Institute.” Each affidavit goes on
“10. The fact that the Institute ceases to act on behalf of a client once legal proceedings have been instituted does not mean however that contact between the Institute and the client completely ceases. In this case, as in many other cases, the client continued to have contact with the Institute by forwarding copies of documents as and when they became available.
11. In fact, clients are encouraged to keep the Institute informed as to the progress of their matter in order to assist the Institute in monitoring the activities of the Australian Taxation Office. Any useful information obtained from clients is reported to other clients of the Institute by way of regular bulletins.
12. It has been suggested that the defences in this matter are practically identical and therefore must have been produced by the Institute. This not so. The Institute does publish quite a lot of information which is distributed to clients. Clients are free to utilise that information at their own initiative. For instance, exhibited here to and marked “LM-1” is a true copy of a document entitled “Australia- Colony to Nation”, which is published by the Institute.
13. I am aware that many courts in Australia have branded the arguments that have been promulgated by the Institute, and utilised by clients in their own Court proceedings, as being ‘nonsense’, spurious’, ‘manifestly untenable’ and ‘utterly hopeless’.
14. Nevertheless, I and a considerable number of other persons, including the Defendant in these proceedings, fervently believe in many of the arguments. I draw the analogy to the ‘Mabo’ decision. The principles developed in that case had previously been argued before several courts and were rejected as being unsustainable.
16. As stated above clients pay a consultancy fee to the Institute. Part of this fee is held in trust on behalf of the client and is only ever released to the Institute in the event of the client succeeding against the Australian Taxation Office. This amount held in trust can be utilised by the client with respect to expenditure which the client may have to undertake in their fight against the Australian Taxation Office.
…17. In this case a direction was given by the client to pay Georgeson & Co from the trust monies.”
From this point, Mr Henke’s affidavits diverge. In respect of Mrs Davidson, he says:
“18. My attention has been drawn to a facsimile from the Defendant to the Institute enclosing the ‘Writ’ and requesting a copy of the Institute’s reply to the Australian Taxation Office. No reply was given to the Australian Taxation Office and I am informed by Ian Henke, a co-Director of the Institute, that the Defendant was informed that she should seek legal advice.”
It is difficult to find any assistance whatever in this paragraph. Disregarding the curiosity of Mr Henke’s apparently being informed by himself, in my opinion, Mrs Davidson was using the expression “reply” as indicating a response by way of defence and as something to be used in the court, not as something to be transmitted to the ATO. I do not regard this odd paragraph as precluding the conclusion (which I do reach) that ITR played a direct role in formulating the notice of intention to defend and (more importantly) defence filed by Mrs Davidson. (I do appreciate that the gender slip noted in paragraph [11] is some indication Mrs Davidson may have got her defence from Mr Faulkner or some other ITR client – there is nothing to show any link, except as ITR clients.)
Mr Henke went on to say in paragraph 19 of both his affidavits that ITR:
“was at no time the ‘real’ litigant in this matter and the Defendant was not encouraged or abetted by the Institute in taking steps to defend these proceedings.”
The reference to “real” litigant may owe something to the plaintiff’s unsuccessful submission to Doyle CJ in Money Tree. No submission that ITR was the real litigant was made here, and none could have been made, sensibly. I do not know whether the last 17 words of paragraph 19 were intended by Mr Henke as a statement of fact or as a conclusion drawn by him. Either way, what he says is, in my assessment, disproved by the evidence now before the court. The inference I may more readily draw from the subpoenaed documents designated “E”, in the absence of explanation by Mr Henke, is that ITR approved, (and probably prepared) the defences before they were filed.
The preceding paragraph in Mr Henke’s affidavit in the Faulkner matter is:
“My attention has been drawn to a letter written by the Institute to Rea & Sockhill. The reason for that letter is that the Institute had been served with the subpoena to produce documents and a copy of that subpoena was forwarded to him. As Mr Sockhill is an agent of the Institute and a solicitor, his firm is usually instructed by the Institute involving matters in which the Institute itself may require legal assistance.”
The reference appears to be to a letter of 7 September 2000 enclosing “documentation relating to this matter.” Mr Henke’s letter says that “as at this date, our office has not been advised of the court hearing date,” which seems at variance with subpoenas indicating that documents were required at hearings at 10 am on Wednesday, 13 September 2000. (There is perhaps some complication from similar maters being listed for the following day – in the end all were collected on the 14th.) The affidavit says nothing regarding Mr Henke’s letter of 25 September 2000 to Mr Faulkner advising him what happened in the court on 14 September 2000 and of an adjournment to 27 October 2000 at which Mrs Julian-Armitage would appear.
In my opinion, inferences ought to be drawn that ITR was the source of the Davidson and Faulkner defences, that it was in contact with both the defendants, and knew what their defences would contain before they were filed. Regarding the summary judgment applications, it was in contact with both the defendants, and knew what defences had been pleaded and were being argued. It released funds (as described by Mr Henke) for the hearing on 14 September 2000. It knew, from the copies of the plaintiff’s solicitor’s letters of 1 September 2000 forwarded to it six or seven days before 14 September 2000, what the consequences might be if “defences” devised by it were pursued unsuccessfully, as such defences had been, all along. For all that appears, ITR did nothing to discourage the defendants from going ahead. On the contrary, it shared counsel with the defendants, who advanced ITR’s own case and the “defences” which Mr Faulkner and Mrs Davidson had embraced.
In my opinion, a case is made, along the lines of that which succeeded in Money Tree, for an order that ITR be joined as a defendant in each matter and be ordered, along with the defendants, to pay the plaintiff’s costs assessed on the indemnity basis under UCPR Rule 704.
These two cases (which, at the end of the day, I do not think can be distinguished from each other) are different from Money Tree, and not quite so clear. There is not equivalent evidence that ITR brought Messrs Rea & Sockhill into the matter, or were the source of their instructions (apart, perhaps, from the letter of 25 September 2000). My view is that Money Tree was a stronger case in that ITR was encouraging a litigant which went to the Supreme Court of South Australia seeking relief. It seems to me that more latitude ought to be allowed to someone assisting a defendant or respondent, who, almost by definition, is brought to court unwillingly. In my opinion, the court ought to be slow to dissuade people from offering assistance to defendants by making punitive orders for costs against them should lines of defence suggested prove unsuccessful. What makes these cases suitable ones for a punitive order is that ITR has proceeded in them knowing that the defences it promulgated must fail, and that precedents existed for its being joined and ordered to pay costs if it persisted in encouraging its clients to run with its defences, thereby generating additional costs and delays in litigation, to no useful purpose.
Notwithstanding the plaintiff’s threat to seek costs against any solicitors the defendants might engage who pursued ITR-type defences, no application for such relief has been made. There is no need here to grapple with the difficult issues that might arise if the expectations of unreasonable litigants that legal representation will be available to them are to be accommodated. In recent days there has been interesting public discussion of these issues when plaintiffs’ solicitors were held liable to pay costs in Cook v. Pasminco Ltd Indemnity (No. 2) (2000) FCA 1819.
In these matters, it would be wrong to make an unqualified order for payment of indemnity costs, whether the original defendant or ITR be considered as the party liable to pay. Consistently with the approach taken in the authorities mentioned, I think that the defendants, in these matters, became amenable to an order for indemnity costs against them only on receipt of the appropriate letter of 1 September 2000 advising of the risk. I would not extend the same tenderness to ITR, given its earlier activities and awareness, identified above. It knew what the letters said, and in each case within a week of their date.
A further qualification that ought to be made concerns the particular plaintiff’s idiosyncratic approach to this kind of litigation. The plaintiff was given encouragement by me to attempt to avoid delay occasioned by allowing the Attorneys-General time to consider intervening under s. 78B of the Judiciary Act by obtaining orders for striking out “defences” of the kinds encountered here, which would mean the proceedings no longer raised or involved constitutional issues. However, the plaintiff (as I understand it, to indulge the Commonwealth Attorney-General’s Office) prefers to leave adversaries’ pleadings intact, so as not to lose the opportunity of identifying suitable test cases to take to the High Court. This has, indeed, occurred in other matters which came before me with the present ones; on 4 December 2000, the Commonwealth Attorney-General (through Mr Coulsen) indicated a desire to take one (of four) before the High Court, requesting the other three be adjourned to a date to be fixed, having, until that date, had no interest in acting under s.78B. The explanation for the changed attitude was said to lie in the political realm, and, more specifically, to be related to the failure of the Standing Committee of Attorneys-General in the previous week to agree on a new national scheme regarding corporations. In my opinion, it would not be right to order punitive costs against other litigants which might be inflated by such special considerations. Questions might arise whether any costs at all ought to be allowed. In my view none should be allowed of the proceedings of 27 October 2000, which both sides wanted adjourned, as it suited them to await developments before Callinan J.
In my opinion, the right costs order to make is that the particular defendant and ITR (which is ordered to be added as a defendant in each action) pay the plaintiff’s costs to be assessed on the standard basis, with the exception of the costs of the summary judgment applications and the hearing on 14 September 2000, which should be ordered to be assessed on the indemnity basis. Consistently with the authorities mentioned above, I think that the costs of ITR’s unsuccessful applications to set aside the subpoenas and of the plaintiff’s successful applications for joinder of it ought to be taxed on the standard basis. There ought to be no costs of the hearing before on me on 6 September 2000 the necessity for which arose because the plaintiff found itself needing an indulgence by way of shortening of a time limit which had been overlooked or could not be complied with.
The proposed orders are indicated on the cover sheet accompanying these reasons. The parties will have the opportunity to submit for other orders consistent with the reasons.
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