Negative Instruments P/L (formerly XL Petrolleum P/L) v The Commissioner of Taxation of the Commonwealth of Australia

[1993] FCA 770

NEGATIVE INSTRUMENTS PTY LTD (formerly XL PETROLEUM PTY LTD) v. THE
COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Nos. VG157 and 158 of 1993
FED No. 770
Number of pages - 3
Taxation
(1993) 27 ATR 192

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
SWEENEY J

CATCHWORDS

Taxation - appeals from Administrative Appeals Tribunal in relation to income tax deductions - security for costs - application of Order 53 Rule 8 of the Federal Court Rules - whether special circumstances exist to justify an order for security for costs.

Order 53 Rule 8 Federal Court Rules

Arnold v. Queensland (1987) 73 ALR 607

HEARING

MELBOURNE, 21 October 1993

#DATE 28:10:1993

Counsel for the Applicant: Mr M. Clough

Solicitors for the Applicant: Mallesons Stephen Jaques

Counsel for the Respondent: Mr P. Sest

Solicitors for the Respondent: Australian Government Solicitor

ORDER

THE COURT ORDERS THAT:

1. the appellant within 21 days give security for costs of these appeals in the sum of $18,524.25 in a form which is acceptable to the District Registrar;

2. if the appellant does not comply with Order 1, each appeal shall upon the expiration of the said 21 days stand dismissed, without further order;

3. the appellant pay the costs of the respondent's motion in each appeal; and

4. all times necessary to enable the hearing of these motions to have proceeded on 22 October 1993 be abridged.

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

JUDGE1

SWEENEY J Negative Instruments Pty Ltd (formerly XL Petroleum Pty Ltd) ("the appellant") is a company incorporated in the State of Victoria. In each of the above matters it has instituted appeals to this court from a decision of the Administrative Appeals Tribunal made on 2 April 1993 in which it disallowed a claim by the appellant to be entitled to a deduction of $1,231,216 and a claim that an amount of $65,770 was also deductible.

1. After the institution of the appeals a motion by Mr Ian Sykes ("Mr Sykes") a director of the appellant seeking leave to appear for it in each appeal were heard and dismissed. At those hearings Mr Sykes said that he was the sole beneficial shareholder of the appellant and that it had no assets. In the appellant's annual return for 1992 its principal activities were said to be "awaiting liquidation pending the outcome of its taxation appeals". Its liabilities were shown as $1,762,403, and its operating profit as nil. It was clearly established that the appellant is insolvent and if the respondent Commissioner is successful in the appeals the appellant will not have any assets with which to pay any costs awarded against it.

2. Counsel agreed that the following statement accurately set out Mr Sykes' assets and liabilities:
   

" AFFIDAVIT OF MR SYKES OF 19 OCTOBER 1993 ASSETS

Paragraph Description Amount $ 4 Cash at bank 761.22 4 Saleable assets at home 6,000.00 5 Silver bars 15,750.00 5 Cash 6,800.00 6 Gold bullion (gold and

silver) 34,200.00 6 Gold and silver coins 21,200.00 6 Gold bars 8,400.00 6 Opals 18,200.00 6 Personal items 650.00 SUB-TOTAL 111,961.22 7 Debt owed to Mr Sykes 50,000.00 7 Debt owed to Mr Sykes 700.00 SUB-TOTAL 50,700.00 TOTAL ASSETS 162,661.22 LIABILITIES

Paragraph Description Amount $ 5 Pledged costs to Mallesons

Silver bars 15,750.00 Cash 6,800.00 9 Costs of High Court action 9,000.00 9 Future costs of Sydney

action 16,500.00 9 Costs of printing book 13,500.00 TOTAL LIABILITIES 61,550.00 NET ASSETS 101,111.22"

1. Order 53 Rule 8 of the Federal Court Rules makes the following provision in respect of security for costs in appeals from the Administrative Appeals Tribunal:
   

"8(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. As Wilcox J, with whom Woodward J agreed, observed in Arnold v. Queensland (1987) 73 ALR 607 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. The factors relied upon by the respondent in the present case are:
   

1. The insolvency of the appellant.

2. Mr Sykes, who is a director and the ultimate beneficial shareholder of the appellant has nett liquid assets which would enable him to provide the security for costs sought.

3. Mr Sykes stands to gain from the success of the appeals, or either of them.

4. The appeals have been instigated by him so that he may benefit from any success in them.

5. He is the source of the funds which allow the appeals to be prosecuted.

6. The order for security for costs sought will not stifle the appeals.

7. If the order be made it will avoid the inequitable and undesirable result that, if the appellant is successful it will recover its costs, whereas if the respondent is successful it will not do so and the burden of the unsuccessful appeals will fall on the public purse.

1. In my opinion the above factors amount to "special circumstances" within the meaning of sub-rule 8(2). In the exercise of the Court's discretion, there should be an order for security for costs in respect of the appeals. The amount sought by the respondent to cover both appeals is $18,524.25 which was based upon the affidavit of a solicitor experienced in respect of costs of litigating such cases as the present.

2. No challenge has been made to that affidavit and the amount is not disputed.

3. Accordingly the court orders that:
   

1. the appellant within 21 days give security for costs of these appeals in the sum of $18,524.25 in a form which is acceptable to the District Registrar;

2. if the appellant does not comply with Order 1, each appeal shall upon the expiration of the said 21 days stand dismissed, without further order;

3. the appellant pay the costs of the respondent's motion in each appeal; and

4. all times necessary to enable the hearing of these motions to have proceeded on 22 October 1993 be abridged.