Mac v Deputy Commissioner of Taxation
[2014] FCCA 1426
•2 July 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MAC v DEPUTY COMMISSIONER OF TAXATION | [2014] FCCA 1426 |
| Catchwords: BANKRUPTCY – Application to set aside bankruptcy notice as an abuse of process – tax debt pursued after proceeds of crime proceedings settled – whether the tax debt was compromised as part of those proceedings considered – whether the debtor was subject to a form of double jeopardy considered – whether an issue estoppel arose from the proceeds of crime proceedings considered. |
| Legislation: Federal Circuit Court (Bankruptcy) Rules 2001 (Cth) |
| Atanasio v BP Refinery [2011] WASCA 95 Walton v Gardiner (1993) 177 CLR 378 |
| Applicant: | TIEN LY MAC |
| Respondent: | DEPUTY COMMISSIONER OF TAXATION |
| File Number: | SYG 2666 of 2013 |
| Judgment of: | Judge Driver |
| Hearing date: | 2 July 2014 |
| Delivered at: | Sydney |
| Delivered on: | 2 July 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Leighton-Daly |
| Solicitors for the Applicant: | Trivo Lawyers |
| Counsel for the Respondent: | Mr G O'Mahoney |
| Solicitors for the Respondent: | Australian Taxation Office |
ORDERS
The application filed on 30 October 2013 is dismissed.
The applicant is to pay 50 per cent of the respondent’s party/party costs of the application, to be taxed in accordance with the Federal Court Rules if not agreed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2666 of 2013
| TIEN LY MAC |
Applicant
And
| DEPUTY COMMISSIONER OF TAXATION |
Respondent
REASONS FOR JUDGMENT
Introduction and background
On 2 July 2014 I dismissed with a partial costs order the application filed on 30 October 2013 seeking to set aside Bankruptcy Notice BN 163524 (Bankruptcy Notice) as an abuse of process. The following are my reasons for the orders I made on that day.
On 14 October 2013, the Deputy Commissioner of Taxation served the Bankruptcy Notice on Mr Mac at Goulburn Correctional Centre, Goulburn[1].
[1] affidavit of Aris Zafririou, sworn on 13 May 2014, [7]
The Bankruptcy Notice was based on a judgment of the District Court entered by consent on 1 May 2012 in respect of proceedings brought by the Deputy Commissioner of Taxation in that court. The judgment was in favour of the Deputy Commissioner of Taxation in the sum of $560,245.38.
In the District Court proceedings, the Deputy Commissioner of Taxation sought to recover debts owed by Mr Mac in respect of income tax (pursuant to the relevant provisions of the Income Tax Assessment Act 1936 (Cth) (Income Tax Assessment Act), administrative penalties (pursuant to the relevant provisions of the Taxation Administration Act 1953 (Cth) (Taxation Administration Act) and general interest charges (pursuant to the relevant provisions of the Income Tax Assessment Act 1997 (the 1997 Act). The relevant debts concerned the income tax years ended 30 June 2007 and 30 June 2008.
On 30 October 2013, Mr Mac filed and served on the Deputy Commissioner of Taxation an application seeking to set aside the Bankruptcy Notice.
The following statement of background facts is derived from the submissions of the parties.
On 12 November 2010, Mr Mac was charged with drug trafficking and money laundering offences.
On 29 July 2011, the Commonwealth Director of Public Prosecutions commenced, by summons, proceedings against Mr Mac in the Supreme Court of New South Wales pursuant to the Proceeds of Crime Act 2002 (Cth) (Proceeds of Crime Act) (POCA proceedings). Responsibility for those proceedings was subsequently transferred to the Commissioner of the Australian Federal Police (AFP).
On 8 August 2011, the Supreme Court made orders in the POCA proceedings, pursuant to s.17 of the Proceeds of Crime Act restraining specified property of Mr Mac (namely certain amounts of cash and properties located in New South Wales) (restraining orders).
On 4 April 2012, Mr Mac was convicted of drug trafficking and money laundering offences. He was subsequently sentenced to 13 years imprisonment.
The POCA proceedings were resolved by way of a consent judgment entered on 18 July 2013, in which the Supreme Court ordered that certain property of Mr Mac was excluded from the restraining orders, and that the balance of the property was forfeited. The excluded property comprised: two real properties situated in NSW; five motor vehicles; and a sum of cash seized from a motor vehicle. The forfeited property comprised: three amounts of cash seized from bedroom safes; one residential property located in Lakemba, NSW; and two residential properties located in Punchbowl, NSW.
The evidence and submissions
Mr Mac relies upon the affidavit of his solicitor, Tri Vo, filed with the application on 30 October 2013 and a second affidavit by Mr Vo filed on 31 March 2014. The second affidavit by Mr Vo only bore upon the contention by the Deputy Commissioner of Taxation that the application should be dismissed as incompetent for reason of non compliance with rule 3.02 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) (Bankruptcy Rules). Mr Vo was not required for cross-examination on that affidavit and, on the basis of the unchallenged evidence in it, I found in an interlocutory judgment made earlier on 2 July 2014 that the application was not incompetent by reason of the alleged non compliance. Mr Vo was required for cross-examination on his initial affidavit.
The Deputy Commissioner of Taxation relies upon the affidavit of Aris Zafiriou (an officer of the Australian Taxation Office (ATO)) filed on 14 May 2014 and the affidavit of Lynne Booth (a solicitor employed by the AFP) filed on 14 April 2014. Neither of those deponents were required for cross-examination. I also received as an exhibit an ATO file note with attachments.
Both parties made written and oral submissions.
Consideration
Mr Mac’s assertion of an abuse of process relies essentially upon the proposition that he was in some way led to believe that the tax debt supporting the bankruptcy notice would be waived as part of discussions which ultimately led to the settlement of the POCA proceedings. The evidence does not support that assertion. The Deputy Commissioner of Taxation was not a party to the POCA proceedings and Mr Vo conceded under cross-examination that, while he had sought a waiver from the ATO, no waiver had been made. Neither was there any evidence of any promise or undertaking to grant a waiver. While a waiver might hypothetically have been needed if all of Mr Mac’s property had been forfeited to the Commonwealth as a result of the POCA proceedings, that was not the outcome. Only specified property was forfeited. Indeed, [27] of the ATO Practice Statement on law administration[2] makes clear that in circumstances where part of a tax debt is clearly not connected to POCA proceedings, the Commissioner cannot exercise his power to waive that portion of the tax related liabilities and would be obliged to continue to pursue tax recovery. In short, I have concluded that there is no evidentiary foundation for the allegation of an abuse of process and there is no other reason why the bankruptcy notice should be set aside.
[2] PSLA 2011/10
The issues are explored in more detail in the submissions of the Deputy Commissioner of Taxation, which I agree with.
Mr Mac’s contention that he “understood the POCA settlement orders included the tax-related liabilities arising pursuant to the 2007 and 2008 assessments”[3] is of no moment for present purposes. In this respect:
a)the Deputy Commissioner of Taxation was not a party to the POCA proceedings;
b)the Deputy Commissioner of Taxation was not privy to, or in any way involved in the negotiations between Mr Mac and the AFP concerning the POCA proceedings;
c)the POCA proceedings did not concern the income tax debts, administrative penalties and general interest charges to which the District Court judgment (which underpins the Bankruptcy Notice) was directed; and
d)the AFP, in agreeing to settle the POCA proceedings, did not purport to bind the Deputy Commissioner of Taxation.
[3] Applicant’s Submissions (“AS”), [24], affidavit of Tien Ly Mac, 30 October 2013, [19]
In short, having regard to the subject matter of the POCA proceedings, the parties to those proceedings and the terms on which they were resolved, there is no factual basis for Mr Mac’s contention that the Deputy Commissioner of Taxation “waived the alleged tax-related liabilities”[4]. Mr Mac does not rely upon, or identify any contemporaneous document that could reasonably be said to ground an understanding that the final orders made in the POCA proceedings “included the tax-related liabilities”[5]. There is no such document. Plainly, the orders made in the POCA proceedings did not bear upon the income tax debts, administrative penalties and general interest charges that were the subject of the proceedings brought by the Deputy Commissioner of Taxation in the District Court.
[4] AS, [24]
[5] AS, [24]
I reject Mr Mac’s contentions in respect of “double jeopardy” principles[6] and their application presently. Mr Mac submits[7]:
Double jeopardy may be relevant in a strict and more general sense. In a strict sense, Res judicata and occupies [sic] the same place in civil law as autrefois acquit or convict does in criminal law…
[6] AS, [14]
[7] AS, [14]
In support of his arguments in relation to “double jeopardy”, Mr Mac relies upon Fullagar J’s description of res judicata in Jackson v Goldsmith[8] at 466:
[W]here an action has been brought and judgment has been entered in that action, no other proceedings can thereafter be maintained on the same cause of action.
[8] (1950) 81 CLR 446
The above principles have no work to do in the circumstances of the present case. The judgment debt underpinning the Bankruptcy Notice did not concern proceedings involving causes of action that had previously been the subject of proceedings against Mr Mac. The District Court proceedings were not “maintained on the same cause of action” as any earlier proceedings against Mr Mac. At the time the consent judgment was entered in the District Court, the income tax debts, administrative penalties and general interest charges at issue in those proceedings had not been the subject of any prior litigation against Mr Mac.
A further problem arises in relation to Mr Mac’s “double jeopardy” contention. The authorities concerning res judicata make it clear that the doctrine only arises in respect of proceedings involving common parties. The POCA proceedings did not involve the same parties as the proceedings before the District Court. Mr Mac relies upon the decision of Rich J in Minister for Works (WA) v Gulson[9] in asserting that the common party requirement is satisfied presently. That assertion is flawed. The High Court in Gulson did not consider the principles of res judicata. That case concerned whether certain Commonwealth Regulations bound the State of Western Australia.
[9] (1944) 69 CLR 338 (at 356-7)
Further, there is no basis for contending that the doctrine of issue estoppel has any present application. The question of issue estoppel was not raised by Mr Mac in the District Court proceedings. There was, in the circumstances, no basis for raising it. Similarly, it does not bear upon the question of whether the Bankruptcy Notice should be set aside.
The requirements for an issue estoppel were referred to by the High Court in Kuligowski v Metrobus[10]:
In his speech in Carl Zeiss Stiftung v Rayner & Keeler Ltd [No 2], Lord Guest, after noting that the doctrine of issue estoppel had been accepted by Australian courts for a number of years, indicated that, for the doctrine to apply in the second set of proceedings, the requirements were:
“(1) that the same question has been decided; (2) that the judicial decision which is said to create the estoppel was final; and, (3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies.”
In respect of the first of these requirements, the finding relied upon to generate the estoppel must be unambiguous.[11]
[10] (2004) 220 CLR 363 (at 373, [21])
[11] Kuligowski v Metrobus (2004) 220 CLR 363 at 381 [47], 383 [52]; Atanasio v BP Refinery [2011] WASCA 95 (15 April 2011) at [260]
In the present case, neither requirement (1) nor (3) as set out by the High Court in Metrobus, is satisfied. The “same question” that arose in the District Court proceedings had not been previously decided. The proceedings brought by the Commonwealth Director of Public Prosecutions (and subsequently the AFP) in the Supreme Court did not concern the “same question” that arose in the District Court proceedings. The Supreme Court proceedings were brought under the Proceeds of Crime Act and directed towards specified property alleged to have been the proceeds of criminal activity. The District Court proceedings sought recovery of income tax debts, administrative penalties and general interest charges pursuant to the Income Tax Assessment Act, the Taxation Assessment Act and the 1997 Act respectively. Further, requirement (3) is not satisfied in two respects:
a)the parties to the judicial decision in the POCA proceedings or their privies were not “the same persons” as the parties to the proceedings in the District Court or their privies; and
b)there were no proceedings “in which the estoppel is raised”.
As I have already found, no abuse of process arises in respect of the Bankruptcy Notice.
The Deputy Commissioner of Taxation has issued and served a Bankruptcy Notice based on a District Court judgment obtained by consent in respect of proceedings for recovery of tax debts, penalties and interest charges. That unrelated proceedings brought under the Proceeds of Crime Act were resolved on terms which involved, among other things, Mr Mac agreeing to forfeit specified items of property, does not give rise to the kind of “injustice or unfairness”[12] that amounts to an abuse of process.
[12] Walton v Gardiner (1993) 177 CLR 378 at 392 per Mason, Deane and Dawson JJ
Mr Mac’s contention that the POCA proceedings and the District Court proceedings were “not unrelated”[13] is flawed. Those proceedings concerned separate and distinct causes of action, and were brought by different parties.
[13] AS, [17]
Section 17 of the Proceeds of Crime Act empowers a court with the relevant jurisdiction to make restraining orders in respect of persons who are convicted of or charged with an indictable offence (or whom it is proposed will be charged with an indictable offence)[14]. Such orders may only be made where, among other things, they are sought by a “proceeds of crime authority”[15] and where the affidavit requirements in s.17(3) are satisfied. Section 17(3) relevantly provides, among other things, that an application for restraining orders must be supported by an affidavit of an authorised officer stating “if the suspect has not been convicted of an indictable offence – that the authorised officer suspects that the suspect committed the offence” and the grounds on which the authorised officer holds those suspicions.
[14] Section 17(1)(d)
[15] Section 17(1)(c)
Part 2-1, Division 3 of the Proceeds of Crime Act establishes a regime for excluding property from restraining orders. Part 2-3, Division 1 establishes a regime for forfeiture of property on the conviction of the relevant person for a serious offence.
In contrast, the District Court proceedings concerned income tax debts, administrative penalties and general interest charges arising in two taxation years. I note that:
a)paragraph 5 of the pleadings in the District Court proceedings stated:
The defendant failed to pay income tax for the year of tax ended 30 June 2008 on or before the relevant due date.
b)paragraph 9 of the pleadings in the District Court proceedings stated:
The defendant is indebted to the Commonwealth of Australia in the sum of $454,285.31 in respect of income tax and additional charges for late payment…
c)paragraph 15 of the pleadings in the District Court proceedings stated:
The defendant is indebted to the Commonwealth of Australia in the sum of $56,969.26 in respect of shortfall interest charge and additional charges for late payment…
In the District Court proceedings, Mr Mac’s liability to pay income tax and general interest charges arose by reason of his failure to pay income tax as assessed by specified due dates in accordance with s.204 of the Income Tax Assessment Act. Mr Mac’s liability to pay administrative penalties (and general interest charges relating to those penalties) arose by reason of his failure to pay administrative penalties as assessed in accordance with s.298-15 of Schedule 1 of the Taxation Administration Act. None of the assessments for income tax or penalty that gave rise to the District Court proceedings have been the subject of proceedings in the Administrative Appeals Tribunal under Part IVC of the Taxation Administration Act[16].
[16] affidavit of Aris Zafririou, sworn on 13 May 2014, [14]
It follows that the proceedings, in terms of the causes of action on which they were based, the issues to which they were directed and the parties bringing them, were not related. Even if Mr Mac were able to show that these proceedings were “related”[17] that in itself would not bear upon the questions that arise presently.
[17] AS, [17]
In addition, there is no authority for the proposition that a bankruptcy notice amounts to an abuse of process in circumstances such as the present. The case relied upon by Mr Mac in this respect, Saffron v Director of Public Prosecutions[18] is not “somewhat analogous”[19]. It is readily distinguishable. In Saffron, a person who had been convicted of an indictable offence, namely a conspiracy to evade the payment of income tax, was the subject of an application for an order to pay the Commonwealth a pecuniary penalty for benefits obtained under s.26 of the Proceeds of Crime Act. The Court held that, because a pecuniary penalty had already been imposed on Mr Saffron, no pecuniary penalty should be assessed under the Proceeds of Crime Act.
[18] (1989) 96 FLR 196
[19] AS, [19]
The present circumstances are not analogous those which arose in Saffron. Here, the offence for which Mr Mac was convicted was unrelated to his income tax liabilities. There has been no pecuniary penalty previously imposed on Mr Mac in relation to his failure to pay income tax, or the making of false or misleading statements to the Deputy Commissioner for Taxation in respect of taxation laws.
Finally, Mr Mac’s assertion there is “double punishment”[20] in the present case misunderstands the statutory basis on which administrative penalties that have been imposed by the Commissioner of Taxation. The administrative penalties applied to Mr Mac, which were in part the subject of the District Court proceedings, arose by reason of his making false or misleading statements to the Commissioner of Taxation in relation to the operation of a taxation law. Those penalties were imposed in circumstances where the Commissioner determined that Mr Mac had, in making certain statements to the Commissioner which were false or misleading, shown a disregard for, or indifference to, the operation of a taxation law.
[20] AS [26]
Section 284-75(1) of Schedule 1 to the Taxation Administration Act provides:
You are liable to an administrative penalty if:
(a)you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a …taxation law …; and
(b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
Note: This section applies to a statement made by your agent as if it had been made by you: see section 284-25.
A “material particular” for the purposes of s.284-75 of Schedule 1 to the Taxation Administration Act is something that is likely to affect a decision regarding the calculation of an entity’s tax-related liability or an entitlement to a credit or payment.
If an entity is liable to an administrative penalty under subsections 284-75(1) or 284-75(4) of Schedule 1 to the Taxation Administration Act, then the Commissioner must make an assessment of the amount of penalty under s.298-30 of Schedule 1 to the Taxation Administration Act.
Section 284-90 of Schedule 1 to the Taxation Administration Act sets out a table for determining the base penalty amount as a percentage of the shortfall amount, including an amount of 50 per cent of the shortfall amount where the relevant shortfall amount, or part of that amount, resulted “from recklessness by you or your agent as to the operation of a taxation law”[21].
[21] Item 2
The administrative penalties applied to Mr Mac were based on the statutory regime set out above. They were imposed on the basis that Mr Mac had made statements to the Commissioner which were false or misleading and, in so doing, demonstrated recklessness as to the operation of a taxation law. In those circumstances, the contention that these penalties resulted in “double punishment” cannot be sustained. None of the orders made in the POCA proceedings had any connection to Mr Mac’s indifference as to the proper operation of a taxation law, or any statements made to the Commissioner of Taxation in respect of his liability to pay income tax.
Conclusion
I ordered on 2 July 2014 that the application be dismissed. I awarded the Deputy Commissioner of Taxation 50 per cent of his party/party costs relating to the application, which took into account the success of Mr Mac on the interlocutory question of the competence of the application.
I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of Judge Driver
Associate:
Date: 15 July 2014
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