New York Properties Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia
[1985] FCA 101
•18 MARCH 1985
Re: NEW YORK PROPERTIES PTY LTD
And: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
No. QLD G84 of 1984
Income Taxation
4 FCR 442
COURT
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Spender J.(1)
CATCHWORDS
Income taxation - application for leave to appeal from decision of Supreme Court - refusal of adjournment by Chairman of the Board of Review - question of law involved in decision of the Board - whether important or of general application - whether leave should be granted - Income Taxation Assessment Act 1936 - s.196(1).
Income Taxation Assessment Act 1936, ss.190, 196, 260 Income Tax Regulations, Reg. 35
E.G. & H. Nominees Pty Ltd v. General Mutual Insurance Co. Ltd (in liquidation) and Anor (1976) 50 A.L.J.R. 460
General Steel Industries Inc. v. The Commissioner for Railways, A.E. Goodwin Ltd and Tulloch Ltd (1964-5) 38 A.L.J.R. 253
Lombardo v. Federal Commissioner of Taxation (1979) 79 A.T.C. 4079
Lombardo v. Federal Commissioner of Taxation (1979) 79 A.T.C. 4542
Income Tax - Appeal from Board of Review - Question of law involved in decision of Board - Refusal of application for adjournment - Whether involved question of law - Income Tax Assessment Act 1936 (Cth), s 196(1).
HEADNOTE
A refusal of a Board of Review to grant a taxpayer's request for an adjournment to enable it to gather certain additional evidence involved a question of law, namely whether it was arguable that the Board ought to have granted an adjournment.
Consideration of matters relevant to the granting of leave to appeal under s 196(5) of the Income Tax Assessment Act 1936 (Cth).
Lombardo v. Federal Commissioner of Taxation (1979) 40 FLR 208; E G & H Nominees Pty Ltd v. General Mutual Insurance Co Ltd (in liq) (1976) 50 ALJR 460; Federal Commissioner of Taxation v. Nixon (1979) 37 FLR 135; Federal Commissioner of Taxation v. Forsyth (1979) 37 FLR 430, considered.
HEARING
1985, March 18. #DATE 18:3:1985
APPLICATION FOR LEAVE TO APPEAL
Application for leave to appeal from judgment and orders of the Supreme Court of Queensland (Ryan J).
P de Jersey QC and N F McLauchlan, for the applicant.
R I Hanger, for the respondent.
Solicitors for the applicant: Henderson & Lahey.
Solicitor for the respondent: Australian Government Solicitor.
GFV
ORDER
Leave to appeal from the judgment of the Supreme Court of Queensland given on 12 July 1984 be granted.
Leave to appeal granted
JUDGE1
This is an application by New York Properties Pty Ltd ("the taxpayer") for leave to appeal from a judgment of the Supreme Court of Queensland constituted by Mr Justice Ryan, on an appeal to that court from a decision of the Commonwealth Taxation Board of Review No 3.
Leave to appeal is required by sub-s. 196(5) of the Income Tax Assessment Act 1936 ("the Act") which provides:
"The Commissioner or the taxpayer may appeal against a decision of a Supreme Court on an appeal or reference under this section -
(a) by leave of the Federal Court of Australia, to that Court; or
(b) by special leave of the High Court, to that Court."
An assessment of income tax was made against the taxpayer in relation to the year ended 30 June 1974 by Notice of Assessment dated 21 April 1978. The adjustment sheet accompanying that Notice of Assessment increased the taxable income by an amount of $92,298.00. There were two components to this sum. First, the rejection of an amount pursuant to a s.36 election and, secondly, the rejection of a bad debt claim.
The applicant lodged a Notice of Objection dated 19 June 1978 seeking, amongst other things, the reduction in the assessment of the amount of $92,298.00. By letter dated 19 July 1978, the applicant was informed that its objection to the assessment had been disallowed. By letter dated 21 July 1978, the Accountants for the applicants requested that the Commissioner refer the decision to a Board of Review. On 11 March 1983 the applicant was given notice that the Taxation Board of Review No. 3 would sit on 3 and 4 May 1983 for the purpose of reviewing the decision of the Commissioner of Taxation upon the objection. Prior to the hearing, the Commissioner, in accordance with regulation 35(1) of the Income Tax Regulations advised that the transactions giving rise to the partnership loss and the bad debts claimed by the applicant were shams, constituted an arrangement which pursuant to s.260 of the Act was void as against the Commissioner, or should be regarded as fiscal nullities.
On 3 May 1983, before the Taxation Board of Review No. 3, senior counsel for the taxpayer sought an adjournment of the hearing. The basis of the application was that the taxpayer had not been able to obtain in the time available all the necessary documentation and evidence for the purpose of presenting the appeal. In support of the application, a statutory declaration of some six pages by Mr Howard Lionel Alexander, a solicitor from the firm acting for the taxpayer, was tendered. In that declaration, Mr Alexander detailed the steps that had been taken by the instructing solicitors after their retention on 20 January 1983 and, in particular, after notification of the date of hearing of the appeal. He further sought an adjournment for a period of approximately three weeks. He stated that unless an adjournment of the hearing was granted, the taxpayer would be seriously prejudiced and would not be able to proceed with the hearing of the appeal. Mr Alexander said in his affidavit:-
"I have had conversations and correspondence with Messrs Kwan Wong Tan & Fong, chartered accountants in Hong Kong who I believe to be the accountants for Noird Ltd. and have arranged for them to forward certain documents in their possession relating to this matter. I believe that they hold other documents or copy documents which are of relevance, such as directors' minutes of Noird Ltd. and its books of account, which further documents they have to date declined to make available to me. I have been informed by Mr. Cominos and verily believe that as a result of his more recent conversations with those accountants they may be willing to make further documents or other material available to me in this matter."
Mr Alexander deposed that the applicant's counsel had advised senior counsel for the Commissioner on the afternoon of 29 April 1983 of the necessity of the taxpayer to seek an adjournment. He further stated that if the Commissioner were to consent to such an adjournment, the taxpayer would agree to an order to pay the Commissioner's costs of and incidental to the adjournment.
Before the Board of Review the applicant contended that, in the light of the material contained in the declaration of Mr Alexander, the adjournment was sought bona fide on reasonable grounds; it offered reasonable assurance that there was some purpose in the adjournment; there was a complete absence of prejudice to the Commissioner upon the undertaking by the applicant to meet any liability and costs to which he may be subject by reason of the adjournment and, consequently, that the Board should in a proper exercise of discretion in accordance with the established principle grant the adjournment sought.
For the Commissioner, senior counsel submitted that:-
"even in a Court and I emphasise the difference between this Board and a court because a court has power to compensate the innocent party ... by an order for costs - even in a Court, where there is that power to compensate the innocent party by an appropriate award of costs, an adjournment is not granted where the basis of the adjournment is that further evidence may be obtained or obtainable, unless the Court has reason to conclude that there is some solid matter which exists and which, if produced, could be regarded as possibly influencing the course of the hearing."
The Chairman, after the Board retired for a short period announced:-
"After consultation with my colleagues I have decided the hearing should go ahead. The Board can, of course, proceed without original documents, so that the lack of possession of the original documents is not essential to the hearing before the Board.
On a study of the declaration, it lends nothing to the belief that co-operation effected to produce documents and records can be expected through Yates, or Barry and Nilsson, or Campbell - his records reveal nothing, and he has failed to observe the board's notice anyway - nor do I consider that anything can emerge through Silke and Jensen Exploration.
The situation in relation to the Hong Kong accountants, who are outside the jurisdiction anyway, is that to date it has been totally unproductive, and reliance on it seems to be based on some uncertain communication between Mr Cominos and Mr Alexander, and the prospect of anything emerging from Myer Realty is to say the least very uncertain and nebulous. So I think, in the circumstances, the Board will not accede to the request that the matter be adjourned."
It was then brought to the attention of the Chairman that in fact Mr Campbell had not been served with a Notice to Produce and the Chairman then apologised and said that he assumed that, having signed the Notice, it had been served.
The applicant then stated that it was unable to proceed with the appeal and, on the application of senior counsel for the Commissioner, the Board announced that it must confirm the Commissioner's assessment, the taxpayer having failed to discharge the onus which lay on it by virtue of s.190(b) of the Act.
The written decision of the Board was "For the reasons given at the hearing the Board decides to uphold the decision of the Commissioner and disallow the objection.
Assessment No. 223166/003 dated 21 April 1978 confirmed."
By Notice of Appeal dated 23 June 1983, the applicant sought an order that the whole of the decision of the Board of Review be set aside and that such assessment be reduced in the manner set forth in the applicant's Notice of Objection dated 19 June 1978. The grounds of the appeal to the Supreme Court were:-
"1.that the Chairman of the Board should have granted such adjournment;
2.that the Appellant should not have been compelled to proceed with the hearing before the Board on 3rd and 4th May 1983 in circumstances where:
(a) on the uncontradicted evidence before the Board:
(i) the Appellent was unable to proceed with the hearing before the Board for the reason that it had been unable to obtain all relevant documentation and evidence for the purpose of the hearing;
(ii) were the adjournment which was sought refused, the Appellant would be seriously prejudiced;
(b) on the uncontradicted evidence before the Board, such inability on the part of the Appellant arose without fault on its part, and there were reasonable grounds for believing that such further documentation and evidence would be obtained were a short adjournment granted;
(c) there was no evidence of any possible prejudice to the Commissioner were the adjournment sought granted;
(d) the Appellant undertook to pay any costs incurred by the Commissioner by reason of such adjournment were the adjournment granted;
3. the decision of the Board was given:
(a) without consideration of the merits of the matter referred to it;
(b) without the Appellant's having been given any reasonable opportunity to present its case;
4. had the Board given consideration to the merits of the matter referred to it, it should have reduced the said assessment on the grounds set out in the Appellant's said Notice of Objection dated 19th June 1978 a copy of which is annexed hereto marked 'A' and incorporated herein."
An appeal lies to the Supreme Court "from any decision of the Board that involves a question of law": s.196(1) of the Income Tax Assessment Act.
On 12 July 1984 Mr Justice Ryan of the Supreme Court concluded, as a preliminary point, that the decision appealed from did not involve a question of law and therefore the appeal to the Supreme Court failed. His Honour referred to the observations of Bowen C.J. in Lombardo v. Federal Commissioner of Taxation (1979) 79 ATC 4542 at p 4546 where his Honour said:-
"For an appeal to this Court the question of law must have been 'involved' in the decision of the Board. 'Involvement' indicates that the question of law must have been an integral part of the decision of the Board, adopted or rejected as a step at arriving at the final conclusion. Even if a question was raised before the Board and they gave a ruling on it in the course of the proceedings before them, it can only be involved in the final decision if it was relevant in it."
I respectfully agree with Mr Justice Ryan that the question of an adjournment was "involved" in the final decision of the Board.
His Honour Mr Justice Ryan then concluded "If in arriving at the decision to reject the application for an adjournment, and in consequence thereof arriving at its ultimate decision to dismiss the appeal, the Board could be said to have misapplied the law, it seems to me that a question of law would be involved in its decision".
This sentence is not without difficulty. If it could be said that the Board misapplied the law, then not only a question of law but an error of law is involved. An error of law does not have to be demonstrated before an appeal is competent.
His Honour continued:-
"The issue is, therefore, whether the decision to refuse the application involved a question of law in the sense of a question of law that was genuinely arguable, as Wickham J. expressed it in Federal Commissioner of Taxation v. Coleman (1978) 78 ATC 4355 at
4358. See also Federal Commissioner of Taxation v. Moody (1981) QdR 272 at p 276, where Connolly J. refers to the need to raise a contestable proposition of law, to use the language of Dixon J. in Deputy Federal Commissioner of Taxation v. Miller (1946) 73 CLR 93 at p 103.
It is well settled by several English decisions that failure to grant an adjournment may constitute a miscarriage of justice which necessarily involves an error of law on which an appeal may be founded. The principle is stated in Dick v. Liller
(1943) 1 KB 497; Rose v. Humbles (1970) 1 WLR 1061, (1972) 1 WLR 33 (Court of Appeal); Priddle v. Fisher & Sons (1968) 1 WLR 1478; and Ottley v. Morris (1979) 1 All ER 65. In Priddle v. Fisher & Sons, at p 1481, Lord Parker C.J. said that it is clear that the exercise of a judicial discretion on wrong principles amounts to a point of law.
Is it then a contestable proposition of law that the Board was wrong in law in refusing an adjournment?"
Reliance before Mr Justice Ryan was naturally placed on E.G. & H. Nominees Pty Ltd v. General Mutual Insurance Co Ltd (in liquidation) and Anor (1976) 50 ALJR 460. Sir Garfield Barwick, in whose judgment the other members of the Court concurred, described the factual circumstances of that case:-
"The precise grounds upon which the adjournment was sought do not, in my opinion, clearly appear in the record before this Court. It seems to me that, at the highest, the primary judge was asked to adjourn the petition on a statement by counsel that, given time, it was hoped to obtain evidence from witnesses to establish an oral assignment of a debt or part of a debt due to the petitioning creditor and thus destroying the basis of the petition which was founded on the existence of the debt. The learned judge had nothing before him which would furnish any encouragement to conclude that there was some solid matter which then existed and which, if produced, could be regarded as possibly influencing the course of the hearing of the petition."
In this particular case the facts are substantially different. There was a statutory declaration from the instructing solicitor, on the contents of which he was not sought to be cross-examined. At the very least there was no doubt as to the existence of documents held by the firm of chartered accountants in Hong Kong. Delivery had been arranged for some of those documents. The difficulty in respect of others was whether they could be voluntarily obtained, no coercive power existing for requiring their production. Those documents could properly be described as documents which "could be regarded as possibly influencing the course of the hearing ...".
It is necessary, of course, to be careful to avoid elevating a determination on particular facts into a principle of law. What was decided in E.G. & H. Nominees Pty Ltd v. General Mutual Insurance Co Ltd (supra) was expressed by Sir Garfield Barwick in these terms: "I am quite unable to conclude that the refusal of the adjournment having regard to the material or lack of it before him was an unjust or an improper exercise of the judge's undoubted discretion to adjourn or not to adjourn the hearing. The wisdom of refusing a sought adjournment is not a matter with which we are concerned."
As Mr Justice Ryan stated, the question in the Supreme Court was whether the decision involved a proposition of law that was genuinely arguable or contestable.
Mr Justice Ryan's conclusion was:-
"A Board of Review is required to deal with cases before it in a judicial spirit: Sutton v. Federal Commissioner of Taxation (1959) 100 CLR 518 at p 523. However, I can find nothing to show that the Board wrongly exercised its discretion to refuse an adjournment in this case; accordingly its decision does not appear to me to involve a question of law.
At most it could be said that it would have been a more appropriate exercise of the Board's discretion to have granted a short adjournment in view of the consequences to the appellant of refusing the adjournment and the undertaking as to costs. However, a court is not concerned with the question whether the discretion is exercised in the most appropriate way. It is concerned only with the question whether it was exercised in accordance with law. The appeal must therefore fail."
There is a crucial distinction between whether a decision to refuse an adjournment was within the discretion conferred on the Board, and whether it was seriously arguable that the decision to refuse an adjournment was within the discretion of the board. The first involved conclusion as to whether there had been an error of law; the latter whether a question of law is involved in the sense presently relevant. I am not unaware that sometimes argument, perhaps even of an extensive kind, may be necessary to demonstrate that a case is so untenable that it cannot possibly succeed: General Steel Industries Inc. v. The Commissioner for Railways, A.E. Goodwin Ltd and Tulloch Ltd (1964-5) 38 ALJR 253.
The fact that after argument one can conclude that no error of law was involved does not necessarily mean that a question of law was not involved. That observation sits a little uneasily with his Honour's conclusions:-
(a) "... I can find nothing to show that the Board wrongly exercised its discretion to refuse an adjournment in this case; accordingly its decision does not appear to me to involve a question of law", and
(b) "... (the court) is concerned only with the question whether it (the discretion) was exercised in accordance with law."
Accepting that the threshold test is not whether an adjournment should have been granted by the Board, but whether it was seriously arguable that an adjournment should have been granted, and having properly reached that threshold, the whole appeal is properly on foot. It is not the point that the question of law involved in the appeal would be resolved in a way adverse to the appellant. If a question of law is involved, an answer to that question adverse to the appellant is not determinative of the appeal.
As to whether leave should be granted, s.196(5) of the Act does not require special leave. I agree respectfully with the observations of Toohey J. in Lombardo v. Federal Commissioner of Taxation (1979) 79 ATC 4079 at p 4080 where he said:-
"... Although it may be at best a negative consideration, the existence of special circumstances is not necessary before leave to appeal to the Federal Court may be granted. ... The conclusion is inevitable that the existence of a question of law is not of itself enough to warrant that leave. Something else is required. A question of law that is important or of general application is, no doubt, sufficient but there may be other considerations that justify leave."
As his Honour observed in that case, the involvement of a question of law is all that is necessary to ground an appeal from a Board to a Supreme Court. To appeal from a Supreme Court to the Federal Court, leave is required.
His Honour observed at 4081:-
"The correctness or otherwise of the decision challenged may be a relevant consideration when the application is before a Full Court. Fredericks v. May (1973) 47 ALJR 362. Sitting as a single Judge, particularly when the correctness of the decision was not fully argued, the situation is different. If leave is granted, the Full Court is not bound by any view of the law I take, but it seems to me undesirable that a single Judge should grant leave on the basis that the decision of the Supreme Court was wrong. That is a matter for the Full Court."
Lockhart J. in Federal Commissioner of Taxation v. Nixon (1979) 79 ATC 4512 agreed with the correctness of these observations of Toohey J. The proper approach to the granting of leave was also referred to by Northrop J. in Federal Commissioner of Taxation v. Forsyth (1979) 79 ATC 4577 at p 4578.
In the present circumstances, a not unsubstantial sum of money is involved, the appeal involves contentions by the Commissioner as to why the sums were owing which are alternative assertions, and each of them serious, and the subject appeal has never been heard on the merits. In my view, those considerations would probably not, in themselves, justify the granting of leave.
This appeal does, however, involve the proper interpretation of s.196(1) and, for that reason, I will grant leave to appeal. While it may be consigning the present applicant to further costs, I will not deny it its opportunity of being heard by the Full Court. I will hear the parties on the question of costs.
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