Deputy Comr of Taxation v Institute of Tax Res P/L No. Scciv-01-229

[2001] SASC 118

DEPUTY COMMISSIONER OF TAXATION v INSTITUTE OF TAXATION RESEARCH PTY LTD (IN LIQUIDATION)
[2001] SASC 118

In the Civil Jurisdiction

1. MARTIN J. On 19 March 2001, upon the application of the Deputy Commissioner of Taxation, pursuant to s 459Q of the Corporations Law, a Master of this Court made orders winding up Institute of Taxation Research Pty Ltd (“ITR”) and appointing a liquidator, Mr Bruce Carter.  On the same day, through a notice of appeal signed by solicitors acting for ITR, that company sought to appeal against the decision that it be wound up.  On 26 March 2001 the Deputy Commissioner applied to have the notice of appeal struck out.  The application came before me on 30 March 2001.  The solicitor representing ITR informed me that a notice of discontinuance would be filed.  I made an order that the appeal be dismissed.  On 3 April 2001 a notice of discontinuance of the appeal was filed. 

2. The Deputy Commissioner sought an order for costs on an indemnity basis against the solicitors acting for ITR who signed and filed the notice of appeal.  In substance, the Deputy Commissioner argued that the solicitor involved acted in dereliction of his duty in not giving reasonable or proper attention to the relevant law and facts in circumstances where if such attention had been given it would have been apparent that there were no worthwhile prospects of success:  White Industries (Qld) Pty Ltd v Flower and Hart (1998) 156 ALR 169 at 239 Goldberg J.

3. The application to wind up ITR was based on a failure to meet a statutory demand for payment of $15 352.13, being the amount due pursuant to an allocatur dated 7 September 2000 issued by the District Court of South Australia in the matter of Deputy Commissioner of Taxation v Harry Miller awarding costs against ITR in the amount of $15 352.13.  ITR opposed the making of the order on a number of grounds which included challenges to the validity of the Corporations Law and the validity of judicial appointments in South Australia.  Submissions were also directed to challenging both the appointments of the Commissioner of Taxation and a Deputy Commissioner of Taxation and their power to bring the proceedings.  The Judge rejected the various grounds of objection.  No suggestion was made that ITR did not owe the amount claimed.

4. The sole ground of the appeal in the notice filed on 19 March 2001 was as follows:

   “1.That the Judge erred in law in finding that Stephen Chapman under whose names a Creditor’s Statutory Demand for payment of debt was issued to the Defendants dated 08^th day of December 2000 had standing to issue such a notice, or to delegate authority to issue such a notice.”

5. The notice of appeal also contained a number of assertions under the heading “Particulars”.  In essence, the validity of the appointment of Mr Chapman as a Deputy Commissioner of Taxation was challenged and it was asserted that the appointment of the Commissioner of Taxation was unconstitutional.

6. At the time ITR filed the notice of appeal, the Master had already made the orders winding up ITR and appointing the liquidator. The notice of appeal was in the name of ITR which, at that time, was a company under the control of the liquidator. Section 471A of the Corporations Law provides that when a company is being wound up, a person cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the company except as a liquidator appointed for the purposes of the winding up or with the liquidator’s written approval or with the approval of the court.  The approval of the liquidator had not been sought or given in respect of the institution of an appeal against the decision of the Master.  Through an affidavit of Mr Ross Burton of the Australian Taxation Office, I was informed that the liquidator opposed the notice of appeal.

7. As mentioned, on 30 March 2000 the Deputy Commissioner applied for an order for indemnity costs against the solicitors involved in filing the notice of appeal.  I adjourned the application in order that those solicitors might be advised of it and to give them an opportunity to respond.  By affidavit dated 6 April 2001, Mr Noel Stewart Waters of the firm Waters O’Brien practising at 146A High Street, Cranbourne in the State of Victoria acknowledged that he was responsible for signing and filing the notice of appeal.  Mr Waters deposed that he instructed a solicitor to attend the court to hear the judgment of the Master and to notify ITR of its contents.  He stated that on the instructions of Mr Ian Henke, a director of ITR, a notice of appeal was filed immediately after judgment was given.  Mr Waters stated “I was duty bound to do so”.  According to his affidavit, Mr Waters believed that the matters raised in the notice of appeal were arguable.  He said he had no improper purpose in filing the notice of appeal. 

8. As to the circumstances in which he received instructions to discontinue the appeal, Mr Waters said that at 11.23 am in Melbourne on 27 March 2001, he received a letter dated 27 March 2001 from Mr Burton of the Australian Taxation Office.  Enclosed with that letter was a copy of the application to have the notice of appeal struck out together with a copy of the affidavit of Mr Burton in support of the application.  The letter stated:

   “As you will note the Deputy Commissioner’s view is that the Appeal is incompetent in that an Appeal against an order winding up a company cannot be made without either the written approval of the liquidator or the approval of the Court.  Additionally, the Deputy Commissioner’s view is that the grounds in the Notice have no merit and, in any event, are not material to proving that the Institute of Taxation Research Pty Ltd is solvent.  As such, s 459S would operate to deny the Court any power to allow the grounds to be argued.  I would refer you to the decision of his Honour Austin J in Poonon v DCT [1999] NSWSC 1121.

   On this basis I request that you review your advice to your client concerning the Notice of Appeal with the view to recommending that it be withdrawn.  Should the Appeal continue to be prosecuted, I put you on notice that the Deputy Commissioner will make an application for your firm to be joined to this action and for costs to be awarded against you on an indemnity basis.”

9. According to the affidavit of Mr Waters, on 28 March 2001 he attended on Mr Henke, the Director of ITR who had given him instructions to file the notice of appeal.  Mr Waters stated that he advised Mr Henke that the matters raised by the Deputy Commissioner were correct and that the notice of appeal should be withdrawn.  He said that Mr Henke concurred.  According to Mr Waters he telephoned Mr Burton on 28 March 2001, but was advised that he was ill and would not be in that day.  He said that he again telephoned Mr Burton on 29 March 2001, but was told that he was unavailable.  Mr Waters was in court for the remainder of the day and understood that Mr Burton had telephoned his office at 2.07 pm.  Mr Waters said that on 30 March 2001 he arrived at his office at approximately 8.15 am to find that two facsimiles had been received at approximately 6.04 pm on 29 March 2001 being an affidavit of the liquidator and an outline of submissions in connection with the application to strike out the notice of appeal.  He said he telephoned Mr Burton and advised him of his instructions to withdraw the notice of appeal.  His request that the matter be adjourned so that the notice could be filed was refused.  He then engaged Mr Kerin to appear in the matter.

10. In an affidavit dated 10 April 2001, Mr Burton agreed that he was absent from his office on sick leave on 28 March 2001 and that on his return on 29 March he was advised of the attempt by Mr Waters to contact him on 28 March 2001.  He attempted to telephone Mr Waters, but was told that he was in court all day.  Mr Burton’s next contact was at about 8.45 am on 30 March 2001 when he received a call from Mr Waters to advise of the instructions to discontinue the notice of appeal.

11. It is implicit in the affidavit of Mr Waters that he accepted the accuracy of the view put forward by Mr Burton in the letter of 27 March 2001 that the appeal was incompetent because the notice was filed without the approval of the liquidator or the court.  Mr Waters did not say whether, prior to filing the notice of appeal, he addressed his mind to the power of a director of a company in respect of which orders for winding up and the appointment of a liquidator had been made to give him the instructions to file the notice of appeal.  He did not say whether he discussed that issue with Mr Henke or that he was unable to disclose his advice to Mr Henke because privilege had not been waived.  As the notice was filed on the same day that the order was made by the Master, some preparation of the content of the notice must have been undertaken in anticipation of an adverse ruling.

12. ITR is not a stranger to awards of costs on an indemnity basis or to awards against its solicitor: Money Tree Management Services Pty Ltd v The Deputy Commissioner of Taxation (No.2) [2000] SASC 63, Money Tree Management Services Pty Ltd v Deputy Commissioner of Taxation (No.3) [2000] SASC 286 and Money Tree Management Services Pty Ltd v The Deputy Commissioner of Taxation [2000] SASC 345.

13. As mentioned, the affidavit of Mr Waters does not indicate whether he addressed his mind to the authority of Mr Henke to give him instructions to file a notice of appeal.  In my opinion, if a solicitor of reasonable competence addressed his mind to that issue, at the least such solicitor would be aware that officers of a company in liquidation do not, generally speaking, continue to be entitled to exercise the powers of a director.  If Mr Waters had addressed his mind to the issue, in my opinion it would have been perfectly obvious to him that there was severe doubt as to whether Mr Henke had the authority to instruct him on behalf of the company to file the notice of appeal.  In particular, I am satisfied that Mr Waters would have been aware that primary responsibility for the conduct of the company’s affairs then rested with the liquidator who had been appointed by the court.  Mr Waters made no attempt to contact the liquidator.

14. In these circumstances, I am satisfied that Mr Waters did not give reasonable or proper attention to the relevant law in this regard.  His conduct involved more than a mere mistake or error of judgment and amounted to gross neglect or, as it is sometimes put, a serious dereliction of duty.

15. I have reached these views independently of any issue concerning the merits of the proposed ground of appeal.  In these circumstances it is unnecessary for me to embark upon a detailed examination of those merits and I have not attempted to do so.  However, speaking generally, it appears that the points taken by ITR amount to variations on themes that have been pursued unsuccessfully in previous litigation and have been described as untenable and without merit.  The content of the notice of appeal and the affidavit of Mr Waters lead me to the view that, regardless of any view as to the prospects of success, Mr Waters was determined to follow the instructions of Mr Henke to pursue the appeal.

16. As to the chronology of events, counsel for Mr Waters suggested that Mr Waters had done everything possible to avoid the incurring of costs once he had received the letter from the Commissioner.  However, although Mr Waters  attempted to telephone Mr Burton, he made no effort to leave a message that the appeal would be discontinued or to advise Mr Burton of that position by facsimile.  Similarly, no effort was made to file a notice of discontinuance immediately.  The circumstances in which the delay in communication led to the Deputy Commissioner incurring costs were brought about by the institution of the appeal which was doomed to failure.  In these circumstances, in my opinion Mr Waters cannot escape liability for the costs by reason of his inability to contact Mr Burton personally.

17. As Debelle J observed in Money Tree v Deputy Commissioner of Taxation (No.3), the discretion to make an order for costs against a solicitor must be clearly distinguished from the jurisdiction to do so.  The jurisdiction is one that must be exercised sparingly, having regard to all the circumstances of the particular case.  Whether conduct which constitutes unreasonable conduct is sufficient to justify an award of costs against a solicitor must depend upon the circumstances of the case:  Levicv Deputy Commissioner of Taxation (2000) 44 ATR 315 at 324 and 325. Unreasonable conduct must be more than merely acting on behalf of a client who has little or no prospects of success.

18. I am satisfied that the circumstances justify the exercise of the jurisdiction to award costs against Mr Waters personally on an indemnity basis.  I do not consider it is appropriate to make any award against the partner of Mr Waters.

19. I order that Mr Waters pay to the Deputy Commissioner of Taxation costs on an indemnity basis in respect of the notice of appeal from the date of the filing of that notice of appeal up to and including 30 March 2001.  That order includes the costs of the appearance before me on 30 March 2001.  I will hear the parties further as to the costs incurred after 30 March 2001 in respect of the application that Mr Waters pay costs on an indemnity basis.