Higgins v Hancock

Case [2011] FCA 1492

FEDERAL COURT OF AUSTRALIA

Higgins v Hancock as Liquidator of 246 Arabella Investments Pty Ltd (in liq) [2011] FCA 1492

Citation: Higgins v Hancock as Liquidator of Arabella Investments Pty Ltd (in liq) [2011] FCA 1492
Parties:

CHRISTOPHER LYNDON HIGGINS v GEOFFREY TRENT HANCOCK AS LIQUIDATOR OF 246 ARABELLA INVESTMENTS PTY LTD (IN LIQUIDATION) (ACN 001 085 481), COMMISSIONER OF TAXATION

File number(s): NSD 1570 of 2011
Judge: JACOBSON J
Date of judgment: 21 December 2011
Catchwords: PRACTICE AND PROCEDURE – Application for preliminary discovery by director of company against the Commissioner of Taxation pursuant to Rule 7.23 of the Federal Court Rules 2011 (Cth) – comparison with preliminary discovery under O 15A r 6 of the Federal Court Rules 1979 (Cth) – documents in question were disseminated to Australian Tax Office by Australian Crime Commission pursuant to s 59 of the Australian Crime Commission Act 2002 (Cth) – documents alleged to have influenced income tax assessment of company
Legislation:

Australian Crime Commission Act 2002 (Cth), s 59
Corporations Act 2001 (Cth), s 511
Income Tax Assessment Act 1936 (Cth), ss 51, 175, 177 and 264
Income Tax Assessment Act 1997 (Cth), s 8-1
Judiciary Act 1903 (Cth), s 39B

Federal Court Rules 1979 (Cth), O 15A r 6
Federal Court Rules 2011 (Cth), Rule 7.23

Cases cited: Apache Northwest Pty Limited v Newcrest Mining Ltd (2009) 182 FCR 124
Commissioner of Revenue (ACT) v Slaven (2009) 178 FCR 334
Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146
Denlay v Federal Commissioner of Taxation (2011) 193 FCR 412
Ebos Group Pty Ltd v Team Medical Supplies Pty Ltd [2011] FCA 862
Egglishaw v Australian Crime Commission (2006) 230 ALR 254
Egglishaw v Australian Crime Commission (2010) 186 FCR 393
Egglishaw v Australian Crime Commission (No 2) (2009) 253 ALR 354
Egglishaw v Australian Crime Commission (No 3) (2009) 259 ALR 458
HFGC Nominees (No 2) Pty Ltd v Hancock as Liquidator of 246 Arabella Investments Pty Ltd (in Liquidation) [2010] FCA 1005
Higgins v Hancock as Liquidator of 246 Arabella Investments Pty Limited (in liq) [2011] FCA 1119
John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679
Kioa v West (1985) 159 CLR 550
Kordan Pty Ltd v Federal Commissioner of Taxation (2000) 46 ATR 191
St George Bank Ltd v Rabo Aust Ltd (2004) 211 ALR 147
Date of hearing: 18 November 2011
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 81
Counsel for the Applicant: Mr JM Ireland QC with Ms C Burnett
Solicitor for the Applicant: Argyle Lawyers
Counsel for the First Respondent: Mr J Darams
Solicitor for the First Respondent: Eakin McCaffery Cox
Counsel for the Prospective Second Respondent: Mr D McGovern SC with Ms JS Gleeson
Solicitor for the Prospective Second Respondent: Australian Taxation Office Legal Services Branch

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1570 of 2011
BETWEEN:

CHRISTOPHER LYNDON HIGGINS
Applicant
AND:

GEOFFREY TRENT HANCOCK AS…

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AGLC
Higgins v Hancock [2011] FCA 1492
Case
[2011] FCA 1492
Decision Date

CaseChat Overview and Summary

Higgins v Hancock was a case heard in the Federal Court of Australia concerning an application for preliminary discovery brought by Mr. Higgins, a director of a company, against the Commissioner of Taxation. The crux of the dispute revolved around documents provided to the Australian Taxation Office (ATO) by the Australian Crime Commission (ACC), which Mr. Higgins alleged influenced the income tax assessments of his company. These documents, referred to as the s 59 documents, were disseminated to the ATO under section 59 of the Australian Crime Commission Act 2002 (Cth), and were obtained from Mr. Philip Egglishaw during Project Wickenby. The assessments in question were issued several years after the relevant tax years and were not considered amended assessments but rather original notices of assessment, as the tax returns for those years disclosed “nil” income.

The legal issues before the court centred on the admissibility and impact of the s 59 documents on the assessments, and whether the application for preliminary discovery should succeed. Specifically, the court had to determine if there was a causal nexus between the s 59 documents and the assessments, and if Mr. Higgins had established sufficient grounds to warrant the discovery of these documents. The court also considered whether there was evidence of conscious maladministration by the Commissioner of Taxation, a concept previously explained by the High Court in Futuris. This principle suggests that conscious maladministration of the assessment process may not produce a valid assessment, but such allegations must be made with care and substantial evidence.

The court concluded that Mr. Higgins had not established a sufficient causal nexus or evidence of bad faith and deliberate misuse of the s 59 documents. The absence of such a causal relationship meant that the application for preliminary discovery could not succeed. Furthermore, the court found that the application was not sufficiently arguable, and therefore refused leave under section 511 of the Federal Court Act 1976 (Cth). Consequently, the court dismissed the application and ordered Mr. Higgins to pay the respondents' costs as agreed or assessed.

Orders

Orders of the court

1. The Application be dismissed.

2. The Applicant pay the Respondents’ costs of the Application as agreed or assessed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The power of the Australian Crime Commission to disseminate documents to other Commonwealth agencies, subject to the quarantining effect on the recipient as referred to above, is found in s 59(7) of the Australian Crime Commission Act. That sub-section provides, as follows:(7) The CEO may give to: (a) any law enforcement agency; or (b) any foreign law enforcement agency; or (c)any other agency or body of the Commonwealth, a State or a Territory prescribed by the regulations;any information that is in the ACC's possession and that is relevant to the activities of that agency or body if:(d) it appears to the CEO to be appropriate to do so; and (e)to do so would not be contrary to a law of the Commonwealth, a State or a Territory that would otherwise apply. The facts The circumstances in which the Australian Crime Commission obtained documents from Mr Philip Egglishaw in the course of Project Wickenby have been referred to in a number of proceedings in this Court: see, for example, Egglishaw v Australian Crime Commission (No 3) (2009) 259 ALR 458 which was upheld on appeal in Egglishaw v Australian Crime Commission (2010) 186 FCR 393; Egglishaw v Australian Crime Commission (No 2) (2009) 253 ALR 354; Egglishaw v Australian Crime Commission (2006) 230 ALR 254. The evidence in the present case is that the two CDs which were obtained by the Australian Crime Commission from Mr Egglishaw through the execution of a search warrant in February 2004 contained documents including correspondence with Mr Higgins. Copies of those documents, that is to say, the s 59 documents, were disseminated to the ATO on 21 October 2004. Mr Higgins did not become aware of the existence of the s 59 documents until he was cross-examined upon them in the AAT. The assessments which were the subject of Mr Higgins’ application in the AAT were issued on 3 November 2008 and 4 November 2008 for the years ending 30 June 1993 to 30 June 2003. Although the assessments were issued many years after the tax years in question, they were not described as amended assessments but rather as original notices of assessment. The reason why the assessments were original, rather than amended, is that Arabella’s tax returns for the years in question disclosed “nil” income. This, and the matters which apparently gave rise to the assessments, are explained in the Reasons for Decision issued by the ATO following upon certain events which culminated in the assessments. Those events commenced in June and July 2007 when the Commissioner issued notices to Arabella (then known as Wanaka Developments Pty Ltd) seeking production of certain documents pursuant to s 264 of the Income Tax Assessment Act 1936 (Cth) (the “1936 Tax Act”). The documents which the Commissioner sought under the s 264 notices included comprehensive accounting records but they also include correspondence and other documents relating to Mr Egglishaw and Strachans SA. Strachans is known to be associated with Mr Egglishaw. Documents were also sought in respect of Arabella’s dealings with a “Strachans intermediary”, Mr John Bush.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

These submissions were properly made and I do not criticise counsel for doing so. But they show the absence of any suggestion of a causal nexus between the s 59 documents and the assessments. They also reveal that Mr Higgins has no reasonable cause to believe that one of the necessary elements of the suggested cause of action, namely bad faith and deliberate misuse of the s 59 documents to subvert the assessments, exists.Conclusion It follows from what I have said that Mr Higgins has not established that the application for preliminary discovery should succeed. It also follows that leave under s 511 of the Act to pursue the application should be refused on the basis that it is not sufficiently arguable: Commissioner of Revenue (ACT) v Slaven (2009) 178 FCR 334 at [46]; HFGC Nominees (No 2) Pty Ltd v Hancock as Liquidator of 246 Arabella Investments Pty Ltd (in Liquidation) [2010] FCA 1005 at [10].Orders The orders I will make are that the application be dismissed with costs.

Ratio Decidendi

Legal Principle Established

In addition, Mr Shepherdson refused to change the evidence contained in his affidavit to the effect that he had not used the s 59 documents in the course of the audit of Arabella.Conscious Maladministration The concept of conscious maladministration and the ability of a taxpayer to rely on it in order to challenge the validity of an assessment were explained by the High Court in Futuris. Their Honours (Gummow, Hayne, Heydon & Crennan JJ) explained it by reference to the scope of the critical provisions of ss 175 and 177(1) of the 1936 Tax Act. Section 175 provides that the validity of any assessment shall not be affected by reason that any of the provisions of the 1936 Tax Act have not been complied with. Section 177(1) provides that a notice of assessment shall be conclusive evidence of the due making of the assessment and, except in review proceedings, or an appeal relating to the assessment, that the amount of the assessment is correct. Their Honours explained in Futuris that where s 175 applies, errors in the process of assessment do not go to jurisdiction and therefore do not attract the remedy of constitutional writs or review under s 39B of the Judiciary Act. Their Honours said, however, at [25] that s 175 operates only where there has been something that answers the statutory description of an “assessment” and:[f]urther, conscious maladministration of the assessment process may be said also not to produce an “assessment” to which s 175 applies. Gummow, Hayne, Heydon and Crennan JJ went on at [60] to express an important warning about the seriousness of allegations of conscious maladministration. They said that 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. They quoted with approval remarks to similar effect made by Hill, Dowsett and Hely JJ in Kordan Pty Ltd v Federal Commissioner of Taxation (2000) 46 ATR 191 at 193. Futuris was discussed (and distinguished) by a Full Court in Denlay v Federal Commissioner of Taxation (2011) 193 FCR 412 (“Denlay”). In that case, Keane CJ, Dowsett and Reeves JJ observed at [76] that in Futuris, the High Court was concerned with actual bad faith in the exercise of the decision making power. The Full Court went on to say at [79] that conscious maladministration as explained in Futuris relates to the integrity of the assessment. Even if the Commissioner of Taxation’s officers obtain information unlawfully, that will not necessarily deny the integrity of the assessment. Their Honours said that:What matters for that purpose is the accuracy of the information and the competence and honesty of those officers involved in making the assessment.See also Higgins v Hancock as Liquidator of 246 Arabella Investments Pty Limited (in liq) [2011] FCA 1119 at [65] per Edmonds J.Preliminary Discovery Although there are some differences in the language of Rule 7.23, it incorporates much of the language of the preliminary discovery rules formerly to be found in O 15A r 6. The same principles therefore apply: Ebos Group Pty Ltd v Team Medical Supplies Pty Ltd [2011] FCA 862 at [19] per Flick J.