Fletcher v Federal Commissioner of Taxation

[1992] FCA 586

Re: REGINALD SYDNEY FLETCHER; CORAL EMILY FLETCHER; JAMES WARREN DUNLOP and
LILLIAN ANN DUNLOP
And: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
No. G200 of 1992
FED No. 586
Practice and Procedure
(1992) 92 ATC 4437
(1992) 110 ALR 233
(1992) 37 FCR 288

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Hill J.(1)

CATCHWORDS

Practice and Procedure - Security for Costs - Appeal from Administrative Appeals Tribunal Taxation Appeals Division - Commissioner withdrew application for security for costs - whether Commissioner justified in commencing proceedings where evidence suggested impecuniosity of applicants - whether Commissioner should pay costs of motion.

Administrative Appeals Tribunal Act 1975: s.44(1)

Federal Court Rules: O.53 r.8

Cowell v Taylor (1885) 31 Ch D 34 at 38, applied

Microcorp Pty Ltd v Terran Computers Pty Ltd (unreported, 26 June 1992, Northrop J), applied

Beard v. Prestige Baking Industries Pty Ltd (1980) 51 FLR 454 at 456, considered

Arnold v Queensland (1987) 73 ALR 607, applied

Kennedy v McGeechan (1978) 1 NSWLR 314, considered

HEARING

SYDNEY

#DATE 14:8:1992

Counsel and Solicitors for the Applicants: S.J. McMillan instructed by

Walker and Raphael

Counsel and Solicitors for the Respondent: D.B. McGovern instructed by

Australian Government Solicitor

ORDER

THE COURT ORDERS THAT:

1. The Respondent's motion for security for costs be dismissed.

2. The Respondent pay the Applicants' costs of the motion.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The course of litigation between the present parties is well known. Suffice it to say that the matter has now twice been before the Full Court of this Court, once before the High Court and has been before the Administrative Appeals Tribunal three times. In respect of the last of these occasions before the Administrative Appeals Tribunal, the individual applicants have again appealed to this Court as they are entitled to, pursuant to s.44(1) of the Administrative Appeals Tribunal Act 1975. That appeal will be heard by a full court to obviate the possibility of yet another appeal.

1. In a step which is, so far as my researches or those of counsel have been able to determine, unprecedented in the conduct of taxation appeals in this country, the Commissioner moved the court for orders that the applicants, Mr and Mrs Fletcher and Mr and Mrs Dunlop provide security for the costs of the appeal from the Administrative Appeals Tribunal and that in default of so doing their appeal be stayed or struck out. When that motion was called for hearing the Commissioner indicated that he no longer wished to proceed with that motion. There thus remained only the question of costs of that motion to be determined.

2. Ordinarily, that would have been a relatively simple matter, for, as a general rule, a party seeking to discontinue a motion will suffer the consequence that costs will follow the dismissal of that motion. However, counsel for the Commissioner sought to argue that the Commissioner was, in the present case, justified in seeking security from the applicants having regard to certain comments that were made by the applicants' solicitor before the Administrative Appeals Tribunal. Before the Tribunal the solicitor said:
   

"In this matter the taxpayers are calling no evidence. There is a reason for that. The taxpayers are wholly unable to afford the costs of arguing this matter any further. They are indeed incapable of losing time from their work at the present moment to attend. In the case of Mr Dunlop, his wife suffers from Multiple Sclerosis and requires his attention several times during the day and he simply has not the money, his business is failing. In the case of Mr Fletcher, his building and the business and plant which was contained in it burned down some six weeks ago. As a result he is still trying to make an insurance claim, has lost over $450,000 there.... Nonetheless, there are no funds. There are no funds to retain me to appear and no funds to retain counsel, either senior or junior, to appear."

1. However, after the motion had been filed, affidavits were filed by both Mr Fletcher and Mr Dunlop which made it clear that they and their wives had substantial assets from which the costs of an appeal to this Court could be met, in the event that the appeal was unsuccessful. In the case of Mr Fletcher, it appeared that the insurance claim, of which mention had been made, was ultimately successful.

2. It may be doubted whether the solicitor's comments necessarily justified a conclusion that the applicants were devoid of assets, or otherwise so impecunious that, if the Commissioner ultimately succeeded in the appeal, a cost order against them would not be met. However, a further question arose whether, even assuming that such a conclusion could be drawn, the Commissioner was justified in bringing proceedings for security where an individual applicant, admittedly impecunious, sought to commence proceedings in the original jurisdiction of this Court to challenge an error of law alleged to have been made by the Administrative Appeals Tribunal on a review of an objection decision of the Commissioner, at least where the appeal to this Court was not frivolous. It should be mentioned here that counsel for the Commissioner conceded, for the purposes of the argument before me, that the appeal could not be said to be without merit.

3. It must be accepted that the court has jurisdiction to order an individual applicant to give security for costs. So much appears from s.56(1) of the Federal Court of Australia Act 1976 which provides:
   

"The Court or a Judge may order an applicant in a proceeding in the Court or an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against him."

1. Security for costs is also dealt with in the Federal Court Rules in O.28 r.3 and, more relevantly, in O.53 r.8. Order 28 r.3 sets out certain circumstances where the court may order an applicant, being a natural person to give security; eg where an applicant is ordinarily resident outside Australia or where the applicant is suing, not for his own benefit, but for the benefit of some other person. It is not in dispute that O.28 has no application to the present circumstances. Order 53 r.8, on the other hand, deals specifically with the present situation. Order 53 is concerned with appeals brought to the court from the Administrative Appeals Tribunal under the Administrative Appeals Tribunal Act. Rule 8 provides as follows:
   

"(1) The Court may, in special circumstances, order that such security for costs of appeal to the Court be given as it thinks fit.

(2) Subject to sub-rule (1), no security for costs of an appeal to the Court shall be required."

1. The power to order security for costs, whether under s.56 of the Federal Court Act or O.53 r.8 of the Federal Court Rules is discretionary; and that discretion must be exercised judicially. There is the added qualification, in applying O.53 r.8, that the power should only be exercised where special circumstances exist.

2. As a general rule, in the exercise of its general discretion to order security for costs, a court will not make an order for security for costs against an individual plaintiff solely on the grounds of impecuniosity. Thus, in Cowell v Taylor (1885) 31 Ch D 34 at 38, Bowen L.J. said:
   

"The general rule is that poverty is no bar to a litigant, that, from time immemorial, has been the rule at common law, and also, I believe, in equity. There is an exception in the case of appeals, but there the appellant has had the benefit of a decision by one of Her Majesty's Courts, and so an insolvent party is not excluded from the Courts, but only prevented, if he cannot find security, from dragging his opponent from one Court to another. There is also an exception introduced in order to prevent abuse, that if an insolvent sues as nominal plaintiff for the benefit of somebody else, he must give security... Those are the common cases, I do not say that there may not be others."

1. That general rule has continued in the United Kingdom to the present day. Thus in Pearson v Naydler (1977) 1 WLR 899 and 902, Megarry V.C. said:
   

"The basic rule that a natural person who sues will not be ordered to give security for costs, however poor he is, is ancient and well established.... The power to require security for costs ought not to be used so as to bar even the poorest man from the courts."

1. The present case does not fall within the exceptions stated by Bowen L.J. In particular, of course, the present application, although commonly referred to as an appeal from the Tribunal, is in fact in the original jurisdiction of the court and represents the first occasion when a litigant has had the opportunity of having his case brought before a court to raise a question of law.

2. The general rule expressed by Bowen L.J. was without comment accepted as applicable in this Court by Northrop J in Microcorp Pty Ltd v Terran Computers Pty Ltd (unreported, 26 June 1992) where his Honour said:
   

"In the exercise of this unfettered discretion, as a general rule, a court will not order an impecunious applicant, being a natural person, to give security for costs."

1. Other cases which have accepted the general rule include:
   Barton v Minister for Foreign Affairs (1984) 2 FCR 463, 469; Famel Pty Ltd v Burswood Management Ltd (1989) 11 ATPR 50,50000 at 50514; and Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 505.

2. Clearly the fact that the present proceeding is an appeal from an administrative decision of a government authority, the Commissioner of Taxation, maintaining the imposition of income tax, would be no reason to depart from this general rule. Quite the contrary. Manifest injustice could well be done and would certainly be seen to be done if despite the conferral of a right to appeal to this Court on a question of law that right could, in the absence of special circumstances, be frustrated by the Commissioner requiring security to be given by an impecunious litigant.

3. Counsel for the Commissioner submitted, however, that the law had now evolved to the stage where personally impecunious litigants, and even legally aided litigants, could be ordered to provide security. In support of this proposition, reference was made, by way of illustration, to Rajski v Computer Manufacture and Design Pty Ltd (1982) 2 NSWLR 443; Kennedy v McGeechan (1978) 1 NSWLR 314; Barton (supra); and Martin Karunakaran v Minister for Immigration and Ethnic Affairs (Neaves J unreported, 20 November 1984).

4. With respect, these cases do not provide support for the proposition for which they are cited. Rajski was not a case where mere impecuniosity of a plaintiff resulted in an order that security be provided; the reasons why Dr Rajski, as well as a corporation which was his co-plaintiff, was required to provide security, are set out at p 452 of the report at first instance. Kennedy v McGeechan was an appeal to the Court of Appeal from the decision of a judge at first instance, and so came, in any event, within the normal exceptions referred to by Bowen L.J. I shall return to that case later in the context of the meaning of "special circumstances". Similarly, the decision of Neaves J in Karunakaran concerned an application for security pending an appeal to the full court from a decision of Sheppard J at first instance. It did not concern an appeal to the court in its original jurisdiction from a decision of the Tribunal.

5. More relevant to the present case are decisions concerning O.53 r.8.

6. In Beard v Prestige Baking Industries Pty Ltd (1980) 51 FLR 454 at 456, Northrop J, dealing with an application under the rule which at that time was in relevantly similar terms, said:
   

"In the present case, the basic principle appears to be that there should be no order for security of costs in relation to an appeal. The fact that an appellant would be unable to pay the costs awarded against him, if the appeal fails, is a strong factor to be taken into account in considering whether to award security for costs or not, but it is not the only factor."

1. Also relevant is the decision of the full court of this Court in Arnold v Queensland (1987) 73 ALR 607, a case directly concerned with the present O.53 r.8. In that case an application for security for costs was made in respect of an appeal to this Court from the Administrative Appeals Tribunal. Wilcox J, with whose judgment Woodward J agreed, said of this application (at 613):
   

"Rule 8(1) gives no guidance as to the nature of the special circumstances which will attract an order for security for costs. No doubt the capacity of the applicant to pay any costs which may be ordered against him or her is always a relevant matter, but mere impecuniosity will not necessarily lead to an order for security: see Cameron's Unit Services Pty Ltd v Whelpton and Associates (Aust) Pty Ltd (1986) ATPR 40-732. Care must be taken not to stifle an action which, in the interests of justice, ought to be determined on its merits."

1. It is, perhaps, interesting to note that the reference to Cameron's Unit Services Pty Ltd is a reference to a case concerned with security being provided by a corporate litigant on an application made under either s.533(1) of the Companies (New South Wales) Code or s.56 of the Federal Court of Australia Act, where no question of special circumstances arose at all. The reference is presumably to p 47,986 of the report where Burchett J, who in fact declined to order security for costs to be made against the corporate applicant, referred to Barton and commented that:
   

"...an impecunious natural person is entitled to rely on the general rule that poverty is no bar to a litigant."

1. In Kennedy v McGeechan, the application for security for costs against an appellant seeking to appeal to the Court of Appeal had to be considered against the background of a Rule governing appeals to that Court, which required there to be "special circumstances". The court said of mere impecuniosity:
   

"The impecuniosity of an appellant may constitute a `special circumstance' leading the Court to order security, in that it is a circumstance which may deprive or delay a respondent receiving his costs of the appeal, if the appeal fails, which costs a successful respondent can usually expect he will actually receive. In an appellate situation, a respondent seeking security is in a stronger position than a defendant at first instance, to the extent that he has a decision in his favour, which is presumably right until displaced. However, impecuniosity may not conclude the matter. Considerations of possible frustration of an apparently genuine appeal or concerning the subject matter of the appeal, such as appeals involving matters of great moment or the liberty of the subject, may provide reasons to refuse an order. The foregoing observations are made not to circumscribe the discretion, but in order to indicate its width."

1. Subsequently in Abduraham v Field (unreported, 4 March 1986) Kirby P, Glass and Samuels JJ.A. said:
   

"The general rule is that no security for costs of an appeal is required... Normally the financial position of an appellant is not of itself sufficient to establish `special circumstances' and to warrant an order for security of costs."

1. A similar approach was adopted by Burchett J in Patrick Michael Darcey v The Preterm Foundation (unreported 18 May 1987).

2. Given that, as a general rule and in the exercise of an unfettered discretion, mere impecuniosity of a plaintiff who is a natural person (not being an appellant from an existing judicial decision) will not be a ground for ordering that person to provide security, why should the position be different when the case arises under O.53 r.8? Indeed, it is difficult to see, when the court's rules require the existence of "special circumstances" before security will be ordered, that the court would be more ready to make an order against an impecunious natural person than it would be if there was no request that "special circumstances" be present. This is not to say that impecuniosity will be irrelevant to the exercise of the discretion, but mere impecuniosity of itself will not generally result in an order being made.

3. For my part, I would add that it would be a rare case where security for costs would be awarded at the instance of the Commissioner of Taxation against a natural person seeking to appeal from a decision of the Administrative Appeals Tribunal reviewing an objection decision, where it was conceded that there was a real issue to be decided between the parties. Certainly more than mere impecuniosity would be required before the court's discretion would be exercised in a way which could bring about the inability of a taxpayer to challenge in a court a question of law affecting his liability to income tax.

4. It follows that I am not of the opinion that the Commissioner was justified in moving the court to seek security against the applicants having regard solely to the comments of the solicitor. That being the case I would order the Commissioner to pay the applicants' costs of the motion.