Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation

Case [2024] FCAFC 42

FEDERAL COURT OF AUSTRALIA

Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2024] FCAFC 42

Appeal from: Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2023] FCA 257
File number(s): VID 253 of 2023
Judgment of: PERRAM, ABRAHAM AND BUTTON JJ
Date of judgment: 20 March 2024
Catchwords:

TAXATION – Goods and Services Tax – where appellant paid invoices rendered by lawyers acting on behalf of individual beneficiaries and certain related entities – where appellant claimed input tax credits in respect of the payment of those invoices – where an individual who controlled the appellant instructed and received advice from lawyers – whether the individual engaged the lawyers on behalf of the appellant – whether scope of appellant’s enterprise included acquisition of legal services provided to beneficiaries of family trust and family group companies – appeal dismissed on these grounds

COSTS – where appellant served Notice to Admit – where respondent did not make admissions – where r 22.03 of the Federal Court Rules 2011 (Cth) provides for default costs consequences of proving truth of facts not admitted – where costs consequences of Notice to Admit not raised before primary judge and costs order made in favour of respondent at the same time as judgment was handed down – where oral application made for leave to appeal costs order – leave refused

Legislation:

A New Tax System (Goods and Services Tax) Act 1999 (Cth) Div 165, ss 9-20, 11-5, 11-10, 11-15, 11-20, 195-1

Taxation Administration Act 1953 (Cth) Pt IVC

Federal Court Rules 2011 (Cth) r 22.03

Cases cited:

Aldi Foods Pty Ltd v Moroccanoil Israel Ltd (No 2) [2018] FCAFC 147

Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1

Brown v Dato Pty Ltd [2006] WASCA 170

Browne v Dunn (1893) 6 R 67

Clark v Trenerry [1999] NTSC 17

Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397

Federal Commissioner of Taxation v Stone (2005) 222 CLR 289

Graham v Commissioner of Inland Revenue (NZ) [1961] NZLR 994; (1961) 8 AITR 309

Harvard Nominees Pty Ltd v Dimension Agriculture Pty Ltd (in liq) (2023) 299 FCR 224

House v The King (1936) 55 CLR 499

Kable v State of New South Wales (No 2) [2012] NSWCA 361

Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2023] FCA 257

Professional Admin Service Centres Pty Ltd v Federal Commissioner of Taxation (2013) 94 ATR 445; [2013] FCA 1123

Re Duty on Estate of Incorporated Council of Law Reporting for England and Wales (1889) 22 QB 229

Secretary, Department of Transport (Vic) v Federal Commissioner of Taxation (2009) 261 ALR 39; [2009] FCA 1209

Spriggs v Federal Commissioner of Taxation (2009) 239 CLR 1

Stone v Federal Commissioner of Taxation (1918) 25 CLR 389

Thomas v Commissioner of Taxation (No 2) [2017] FCAFC 144

Watson v Federal Commissioner of Taxation (2020) 277 FCR 253

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AGLC
Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2024] FCAFC 42
Case
[2024] FCAFC 42
Decision Date

CaseChat Overview and Summary

Konebada Pty Ltd ATF the William Lewski Family Trust appealed against the Commissioner of Taxation’s determination that it had not made taxable acquisitions in relation to payment of invoices rendered by lawyers acting on behalf of individual beneficiaries and certain related entities. The Court was required to determine whether the appellant engaged the lawyers on behalf of itself, and whether the scope of its enterprise included the acquisition of legal services provided to beneficiaries of the family trust and family group companies.

The primary judge found that Konebada acquired services from the law firms concerned, which were constituted by the provision of legal advice or legal services to beneficiaries of the Trust. The primary judge concluded that the services received were a taxable supply within the meaning of the GST Act, and that the supply to Konebada was a taxable supply. The Court held that the primary judge was correct to conclude that the appellant acquired the services, and that those acquisitions were within the scope of its enterprise. The Court held that the appellant’s appeal should be dismissed and that the application for leave to appeal the costs order should be refused.

The final orders of the Court were that the appeal be dismissed and the application for leave to appeal be refused, and that the appellant pay the respondent’s costs, to be taxed if not agreed.

Orders

Orders of the court

1. The appeal is dismissed and the application for leave to appeal is refused.

2. The Appellant pay the Respondent’s costs, to be taxed if not agreed.

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

Background

Background to the litigation

The Commissioner’s response was dated 21 February 2022, and enclosed a Notice of Dispute. The Commissioner’s covering letter noted as follows: Facts 3. The Commissioner is of the view that the facts required to be admitted in the Notice to admit concern the very issue that is in dispute between the parties in these proceedings – i.e., whether your client made any acquisitions of relevant supplies.4. This is made clear in your email in which you state:In order to minimise evidentiary issues between the parties at trial and to best assist the Court, the Notice deals with the fact that each service supplied to the Applicant was in fact paid for by the Applicant.5. This assumes that the services were in fact supplied to your client, which you are well aware is disputed by the Commissioner.Documents 6. The Commissioner ordinarily has no issue admitting authenticity of bank statements.7. However, the Westpac Business Cheque Account statements enclosed in your email dated 9 February 2022 contain handwritten annotations that you contend were added contemporaneously by the tax agent of the Applicant.8. The Commissioner is not able to reconcile all of those handwritten annotations with the invoices provided by your client during the audit and is otherwise unable to verify all of the annotated withdrawals.9. Accordingly, he is not prepared to admit the authenticity of the annotated bank statements provided with the Notice to admit. By ground 13, Konebada contended that the primary judge erred in concluding that the application was to be dismissed with costs when no reasons were given for dispensing with compliance with r 22.03 of the Rules. In Harvard Nominees Pty Ltd v Dimension Agriculture Pty Ltd (in liq) (2023) 299 FCR 224, the Full Court (Colvin, Stewart and Feutrill JJ) considered the authorities and confirmed (at [13]) that costs orders are interlocutory and leave to appeal is required to challenge a costs order, except where the making of a different costs order is a necessary consequence of success on the appeal. On the hearing of the appeal, counsel for Konebada orally sought leave to appeal on this point (no leave having previously been sought). Rule 22.03 provides for specific cost consequences to follow the service of a Notice of Dispute, where the truth of any fact, or the authenticity of any document disputed in that notice is subsequently proved. While the Court retains an overarching discretion over costs, if r 22.03 applies, any exercise of that discretion in order to depart from the cost consequences specified by r 22.03 would need to be considered and justified. Konebada accepted that it had not, in closing, asked the Court to deal with costs separately from the outcome of the substantive dispute on the basis that, even if it were unsuccessful, it wished to rely on r 22.03 in relation to the Commissioner’s Notice of Dispute. Nor were any submissions made to the primary judge regarding how the Notice to Admit, and the Notice of Dispute, should affect the disposition of costs if the Court were to dismiss the application. That was explained by Konebada on the basis that the primary judge issued her reasons and orders by email (cf convening a hearing to hand down judgment and inviting submissions on costs).

Evidence

Evidence Before The Court

The central thrust of Mr Lewski’s evidence on the issues presently of concern was summarised by the primary judge as follows (J [20], emphasis added): Mr Lewski’s evidence was that the Applicant paid the invoices rendered by solicitors, barristers and accountants, including those relating to the litigation to which members of the Lewski Family Group were parties. Mr Lewski’s evidence was that the Applicant was authorised to ‘conduct’ the litigation on behalf of those persons who were the parties to that litigation. Although he had no specific recollection of any particular conversations with other members of the Lewski Family Group, his recollection was that each member ‘approved of the [A]pplicant managing [the] litigation’. All instructions to the lawyers were provided by Mr Lewski. He considered that he was providing those instructions ‘as a representative of the [A]pplicant’. Her Honour then set out extended passages of Mr Lewski’s oral evidence in chief and cross-examination. Through those passages of evidence Mr Lewski gave evidence that arrangements were made informally in the Lewski family, that he received advice from lawyers and disseminated the advice, and decisions that had been made, to family members, who acquiesced, and who only got involved when required as witnesses. Mr Lewski stated that Konebada did more than simply act as a conduit for advice, but, in effect, took charge of the litigation. Mr Lewski put the point as follows in a passage of cross-examination (J [24], emphasis in original):It was providing services to the members of the Lewski Family Group which may have, in part, included legal advice that [the Applicant] received in its direct form or in a modified form, depending on what [the Applicant] made of the advice. Mr Lewski went on to explain in cross-examination (as set out in J [26]) that Konebada’s coordination of the litigation involving members of the Lewski Family Group, and entry into the funding agreements, was a form of asset protection. That function was said to be served by ensuring that any proceeds of litigation would be received by Konebada, thus insulating assets and proceeds from the reach of liquidators or trustees in bankruptcy. The primary judge concluded (J [112]) that Konebada acquired services from the law firms concerned. The services received were constituted by the provision of legal advice or legal services to beneficiaries of the Trust. Consequently, the primary judge concluded (J [113]) that there was an acquisition by Konebada for the purposes of s 11-5(a) of the GST Act and that the supply to Konebada was a taxable supply within the meaning of s 11-5(b). The primary judge accepted key parts of Mr Lewski’s evidence. Her Honour stated as follows (J [28]): I accept that Mr Lewski was the directing mind of the Applicant, irrespective of whether he held the office of director or not. As the directing mind of the Applicant, evidence of his state of mind is relevant: Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 5 (Hunt J). I accept that Mr Lewski sought to co‐ordinate the direction of complex interrelated litigation and that he directed the strategy for the conduct of that litigation. I also accept Mr Lewski’s evidence that he believed that having litigation proceeds paid to the Applicant rather than individuals might insulate the proceeds from the claims of future creditors against those individuals. I accept that Mr Lewski instructed the lawyers acting for members of the Lewski Family Group. I accept that Mr Lewski was the party to whom the lawyers conveyed their advice and that he made strategic decisions concerning whether to accept advice given by the lawyers. I also accept that the Applicant paid the invoices rendered by the professional service providers.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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