Hart & Ors v Commissioner of Taxation of the Commonwealth of Australia

[2005] HCATrans 789

[2005] HCATrans 789

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B23 of 2005

B e t w e e n -

PHILIP HART

Applicant

and

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Office of the Registry
  Brisbane  No B24 of 2005

B e t w e e n -

TAMARA RAMSDEN

Applicant

and

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Office of the Registry
  Brisbane  No B25 of 2005

B e t w e e n -

TROY HART

Applicant

and

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Applications for special leave to appeal

GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 30 SEPTEMBER 2005, AT 12.27 PM

Copyright in the High Court of Australia

MR W. SOFRONOFF, QC:   May it please the Court, I appear with my learned friend, MR P.G. BICKFORD, for the applicants.  (instructed by James Conomos Lawyers)

MR D.K. BODDICE, SC:  If the Court pleases, I appear with my learned friend, MS M.M. BRENNAN, for the respondent.  (instructed by Australian Government Solicitor)

GUMMOW J:   Yes. Thank you.

MR SOFRONOFF:   As everyone knows, your Honours, discretionary trusts are common and consequently clauses providing for the appointment of income in default of the exercise of a discretion by trustee are common and as a consequence it is not surprising that a person may become unwittingly presently entitled within the meaning of the statute to income and saddled thereby with a tax liability on wholly technical grounds in circumstances where there might not be any money to demand from the trustee and therefore any money from which to pay the tax liability.

Indeed, the first knowledge that a person might have of the existence of the entitlement might be the service of the income tax assessment.  The only method, or at least the method to avoid consequential ruin would be to disclaim the gift.  The decision of the Full Court, in our submission, stands for a number of propositions which raise questions that we respectfully submit ought be considered by this Court.

The Full Court said, in our respectful submission, wrongly, that constructive notice would be sufficient to base a finding of acceptance of a gift.  Could I take your Honours to page 75 of the book?

GUMMOW J:   Yes.

MR SOFRONOFF:   As your Honours are aware, no doubt, the applicants were served with tax assessments and thereupon became aware of their entitlement under the deed and thereafter on three subsequent occasions expressly attempted to disclaim the gift, twice by deeds which it is accepted were made, twice by deeds which disclaimed the gift as a gift of income in that particular year and finally by a deed that was executed just before the trial by a disclaimer of the entirety of the gift, whatever it was, under clause 3(e).  Their Honours in paragraph 59 concluded that:

In the absence of other evidence, an inference is available that the respondents became aware of the gift made by virtue of cl 3(e) of the Deed some time shortly after 19 July 2000.  Alternatively, the probabilities are that the respondents (if only by their advisers) became aware of that gift by the time that the notices of objection . . . were lodged ‑ ‑ ‑

The gift that their Honours are referring to in paragraph 59 is the gift that their Honours define in paragraphs 57 and 58.  The gift that everybody thought had been made, until the decision of the Full Court, was the gift of income.  The gift that the Full Court found had been made was the gift made by virtue of the execution of the deed in 1981 and so the prior disclaimers referring merely to the income were held by their Honours to have been ineffective for that purpose.  Justice Spender found that they were effective.

So having defined the gift in terms in 57 and 58 their Honours then concluded that if the advisers could be taken to have been aware of that gift so too were the applicants, that is, by a process of constructive knowledge.  We have a complaint if your Honours were to grant leave to appeal – we have a complaint.

HEYDON J:   Mr Sofronoff, or an inference of actual knowledge because it would be in the ordinary course of events that a competent adviser would tell his principal or her principal of the event in question.

MR SOFRONOFF:   But, your Honour, one might have viewed the evidence in that way but for two things.  One is that their Honours say in the third last line of paragraph 59:

In any event, the respondents (if only by their advisers) must have known –

So their Honours did not mean, as we read that sentence, that their advisers therefore must be taken to have told them.

HEYDON J:   When do the respondents say they knew?

MR SOFRONOFF:   The respondents knew of the fact of the gift when they received the assessment.  When I say the gift I mean whatever gift it might have been which gave rise to the tax liability.  If your Honours go to page 20, the applicant, Ms Ramsden says in paragraph 7 of her affidavit that:

Until I received the Notice of Amended Assessment . . . some time shortly after the 19^th of July 2000, I had no idea that I might be entitled to receive any benefit –

So what they did was they took advice. That advice was to sign a deed of disclaimer - put in a notice of objection, sign a deed of disclaimer and successively sign deeds of disclaimer, the second one identical to the first because the first had been lost.  The third one then is the one that appears at page 22 just below line 25, clause:

‘D. OPERATIVE:

1.        The Beneficiary disclaims –

which would be apt to disclaim the entirety of the gift even as found by the Full Court.

GUMMOW J:   The third disclaimer is 2002, is it not?

HEYDON J:   It says “8 October 2002” the one you took us to on page 22, paragraph 56:

The second recital of the Deed of Disclaimer of 8 October ‑ ‑ ‑

MR SOFRONOFF:   The third disclaimer was 2003, your Honour.  I will just find the passage.  Paragraph 56.

HEYDON J:   It is a deed exhibited to an affidavit of 2003 dated 8 October 2002.

MR SOFRONOFF:   If your Honours go to page 23, paragraph 58 in the third and fourth lines.  What happened was that just before the trial in 2003 that third disclaimer was signed.

GUMMOW J:   Exactly, yes.

MR SOFRONOFF:   Your Honours, what the Full Court did was despite the ‑ ‑ ‑

GUMMOW J:   No, any misfortune may have been a product of what happened in the years preceding October 2003 and then the advice that was given and acted upon.

MR SOFRONOFF:   Yes, but the advice that was sought was, with respect ‑ ‑ ‑

GUMMOW J:   And its shortcomings.

MR SOFRONOFF:   Yes, your Honour, but the consequence of all of their conduct was to seek to disclaim by whatever means the gift of income that had been made to them, evidently, under the terms of the deed of which they were unaware, all but one of them, other than when the notice of amended assessment was served upon them.  In our submission, it is contrary to the evidence to conclude that despite consistent conduct on the part of the taxpayers to disclaim the gift by whatever means possible a finding should be made that they not only failed to disclaim the gift but showed some reluctance to disclaim the gift.

If leave to appeal were granted we have some complaints about the means by which their Honours came to their conclusions.  In a case where the issues were fought on evidence directed towards an understanding that the gift that had been made was a gift of the income in that particular year, not a gift that had been made by deed in 1981, but leaving that aside, the decision of the Full Court, in our submission, raises these points.  Can a person be precluded from disclaiming a gift of which they were entirely unaware because they are taken to know something by means of the knowledge of their advisers when their advisers had, as the Full Court on appeal ultimately finds, adopted a wrong view of the nature of that gift.

Is there an obligation, as the Full Court found, to disclaim within a reasonable time or is it merely a matter of evidence as to whether a disclaimer took effect or whether there had been an acceptance in the interim of a kind which could preclude later disclaimer.  The Full Court found, your Honours, that it was not possible to disclaim after acceptance of a gift.  Your Honours will find that referred to as a matter of, it was said, common ground at the top of page 73.  It was not a matter of common ground.  Indeed, it was argued before Justice Spender that acceptance of a gift does not preclude later disclaimer in all circumstances.  Indeed, the decision In re Gulbenkian is authority for that because Gulbenkian had accepted successive exercises of discretion for almost two decades before finally disclaiming all interest under the deed of settlement.

So, in our submission, those issues are raised which are worthy for the consideration of the Court and if the Court were to grant leave to appeal in our submission there are reasonable or good prospects of success.  Those are submissions, your Honours.  Excuse me, your Honours.

GUMMOW J:   Yes.

MR SOFRONOFF:   Your Honours, I forgot to seek leave to file and read the affidavit of James Nicholas Conomos which was sent to the Registry yesterday.  It is dated the 29^th.  It goes to this question.  There are a number of cases pending in the lower courts in which the issue of a disclaimer and its effect have been raised and so that goes to the question of the importance of the issues that we seek to raise.

GUMMOW J:   Yes, I see that.  Is there any opposition to the receipt of that affidavit, Mr Boddice?

MR BODDICE:   Your Honours, only to this extent, that the affidavit does not descend to indicating whether indeed the same issues arise, for example, whether it was default beneficiaries, whether the issue of the disclaimer was disallowed on the basis that it was too late because of an acceptance of the gift, but apart from that there is no objection.

GUMMOW J:   All these discretionary trusts are different in terms.  Yes, we do not need to hear you any further, Mr Boddice.

Insofar as the Full Court decision turned upon questions of law, the decision was correct.  Insofar as the decision turned upon matters of fact, there is no issue arising which would warrant a grant of special leave.  Accordingly, special leave is refused with costs.

AT 12.39 PM THE MATTER WAS CONCLUDED