Novaneck Pty Ltd as trustee of the Florin Investment Trust v. Johnston and Ors

[2007] QDC 336

DISTRICT COURT OF QUEENSLAND

CITATION:

Novaneck Pty Ltd as trustee of the Florin Investment Trust v Johnston and Ors [2007] QDC 336

PARTIES:

NOVANECK PTY LTD as trustee of the Florin Investment Trust
(Plaintiff)
v
ROSS JOHNSTON
(First Defendant)
JOHN RORKE
(Second Defendant)
ROBERT BROOKS
(Third Defendant)
ROSS WALKER
(Fourth Defendant)
BRUCE ANNABEL
(Fifth Defendant)
FLORIN INVESTMENTS PTY LTD ACN 010 045 548
(Sixth Defendant)

FILE NO/S:

BD3243/05

DIVISION:

Civil

PROCEEDING:

Trial

ORIGINATING COURT:

District Court, Brisbane

DELIVERED ON:

18 December 2007

DELIVERED AT:

Brisbane

HEARING DATE:

26-29 November 2007

JUDGE:

Koppenol DCJ

ORDER:

Action dismissed with costs

CATCHWORDS:

INCOME TAX RETURN – TRUST – TREATMENT OF LEASE INCENTIVE PAYMENT – whether chartered accountants negligent or in breach of contract

DAMAGES – COUNSEL’S FEES – FILING FEES – INCORRECT RETURN PENALTY – LATE PAYMENT PENALTY – INTEREST – whether quantum proven

Income Tax Assessment Act 1936 (Cth), s 251M
Supreme Court Act 1995, s 47

COUNSEL:

J.B. Sweeney for the plaintiff
A. Crowe SC, with M. Bland for the first to fifth defendants

SOLICITORS:

Carter Newell Lawyers for the plaintiff
Deacons for the first to fifth defendants

Introduction

1. This is an action seeking $136,190 damages for negligence, breach of contract and/or pursuant to section 251M of the Income Tax Assessment Act1936 (Cth), together with interest on damages of $40,857.

1. The plaintiff claims that the first to fifth defendants (as partners in a firm of chartered accountants) are liable because of certain action which the firm allegedly took or failed to take in respect of the 1990 income tax return of a particular trust of which the plaintiff is the successor trustee.  The dispute centred upon the tax treatment of a $300,000 lease incentive payment.

1. At the trial and in their submissions, the parties concentrated upon the question of liability.  If liability were established, the quantum of damages would require consideration.  However, if the plaintiff failed to establish liability, quantum would still require consideration because of the possibility that that finding might be overturned on appeal.

1. It is therefore convenient to consider at the outset the quantum of damages claimed.

Quantum

1. The damages claimed compromise counsel’s fees ($11,325), filing fees ($1,619.50), incorrect return penalty ($70,746.50), late payment penalty and interest ($52,499.15), together with interest on damages under section 47 of the Supreme Court Act1995 ($40,857).

1. Counsel’s fees:  This claim is for the plaintiff’s share of the fees paid.  The plaintiff claims as trustee of the Florin Investment Trust, which was also called the Florin Discretionary Trust.  Mr Robertson of counsel rendered 8 invoices to Carter Newell Lawyers.  Two invoices (Nos 1354 for $1,400 and 1397 for $600) were entitled:  “Re: Reginald M Carter”.  Reginald Michael Carter is a founding principal of the plaintiff’s solicitors and a beneficiary of the Florin Discretionary Trust.  At that time, Mr Carter was pursuing appeals against his personal income tax assessment and the Florin Discretionary Trust was being audited by the Australian Taxation Office (ATO) about the taxation liability for the subject lease incentive payment.  On Mr Carter’s instructions, the trust was resisting any liability or penalties and also contesting its own tax assessment.  Another 2 invoices (Nos 1474 for $6,400 and 1479 for $2,700) were entitled “Re: Carter v FCT”.  Three (Nos 1610 for $750, 1633 for $9,600 and 1713 for $600) were entitled:  “Re: Carter v FCT; Flori …” and one (No 1330 for $600) was entitled:  “Re: Florin Discr Trust …”.

1. The 8 invoices totalled $22,650.   They were rendered between September 2002 and November 2003.  The statement of claim alleged that 50% was apportionable to Florin—that is, to the plaintiff.  The justification for that apportionment was given by Mr Carter (T 63, 26.11.07) as:  “We had to take all the same action for … the trust penalty case as we did for the personal tax case” and (T 64, 26.11.07) “he [Mr Robertson] advised me at each step for the documents and the approach to take.”  Mr Sweeney of counsel for the plaintiff submitted (T 70-71, 29.11.07) that a simple and not scientific approach was taken because there were 2 taxpayers having a fight with the Commissioner over relatively similar amounts of money.

1. Mr Crowe SC for the first to fifth defendants accepted (T 29, 29.11.07) that as a result of action taken by the trust, its incorrect return penalty was reduced from $87,871.75 to $70,746.50.  However, he submitted that it was impossible to know how much of counsel’s fees resulted in that reduction because Mr Robertson was also pursuing Mr Carter’s own position and his own appeals against his assessment.

1. As noted above, 4 of the 8 invoices make no reference at all to Florin.  Three others do, but also to “Carter v FCT”.  Only 1 (No 1330) mentions Florin by itself, but it shows “…” after “Trust” in the heading, perhaps thereby indicating that it was in relation to another or other subjects as well.  That invoice described the professional services performed as:  “06.09.02—To conference with instructing solicitors and client (1 hr).”  Self‑evidently, that does not indicate what the conference was about.

1. Having carefully examined each of the 8 invoices and Mr Carter’s evidence, I accept Mr Crowe SC’s submission that it is impossible to know which percentage of Mr Robertson’s fees properly relate to the Florin dispute alone.

1. In my view, it is not appropriate for the Court to engage in guesswork or speculation as to which part of which invoice related to services rendered for Florin—and indeed which percentage of that related to Florin’s dispute with the ATO over the subject lease incentive payment, rather than to Mr Carter’s personal position with respect to that dispute.

1. In the circumstances, no component of Mr Robertson’s fees has been proven to be recoverable in this action.

1. Filing fees:  This claim is for Florin’s alleged half share of 2 Administrative Appeals Tribunal (AAT) filing fees ($574 on 02.10.02 and $1,212 on 13.07.04) and 1 Federal Court filing fee ($1,453 on 26.07.04).

1. The first AAT fee was for an application to review the Commissioner’s decision to disallow Florin’s objection to its income tax assessment.  That proceeding (as well as Mr Carter’s similar proceeding) was settled in November 2003.  The assessments stood, but the incorrect return penalty and late payment penalty were partially remitted.  However, there was no evidence of why that occurred.  Settlements may result from a variety of factual and legal circumstances.  Were concessions made?  Was some further information provided?  Absent such evidence, it would again invite guesswork or speculation as to why the settlement came about—and therefore, relevantly, as to whether the AAT application (and antecedently, the filing fee) itself or some other factor or event caused the settlement.

1. In those circumstances, the first AAT filing fee of $574 has not been proven to be recoverable in this action.

1. The second AAT fee and the Federal Court fee were for applications to review the Commissioner’s decision not to remit in full all late payment penalties and general interest charges.  The AAT proceeding (as well as Mr Carter’s similar proceeding) was settled in November 2004.  The Commissioner authorised partial remissions of the general interest charges only.  There was no evidence of what (if anything) transpired with respect to the Federal Court application.

1. Because I conclude below that there is no basis upon which the general interest charge could be recoverable in this action, the claim for the AAT and Federal Court filing fees for applications to remit those charges (as well as late payment penalties, which were not ultimately remitted) cannot succeed.

1. Incorrect return penalty:  This claim is for $70,746.50, comprised of incorrect return penalty of $87,871.75 less remission of incorrect return penalty of $17,125.25.

1. This penalty was imposed by the Commissioner because Florin had not disclosed in its 1990 income tax return the subject lease incentive payment.  The plaintiff said that that was because of the defendants’ negligence or breach of contract—issues which need not be decided for present purposes.

1. Mr Crowe SC questioned who actually paid the $70,746.50.  The evidence is unclear. The November 2003 settlement resulted in Mr Carter having a tax credit of $35,532.60 and Florin having a tax liability (including late payment penalty and general interest charges) of $123,246.50.  Mr Carter gave evidence (T 65, 26.11.07) that his personal tax credit was applied towards Florin’s liability and then adjusted in his and the trust’s accounts.  He was also asked in evidence-in-chief about the other payment of $87,714 which was made to the Commissioner in November 2004:

“The payment received of 87, is that not a payment from Florin’s cheque book, it’s from Novoneck’s [sic] cheque book?--I think it was done by bank transfer from Novoneck.

But both sets of funds were trust funds, is that right?--In the end they were trust funds, yes.”

1. No other evidence was given about those payments.  No financial statements from the plaintiff were tendered to show what occurred.

1. Mr Sweeney’s written closing submissions said (paragraph [120]) that “the successor trustee of the Florin Investment Fund paid the Commissioner of Taxation $123,246”.  That contention is not correct.  First, the $35,532.60 payment was Mr Carter’s personal tax credit.  Secondly, Mr Carter’s evidence that he thought that the other payment was made by bank transfer from the plaintiff is hardly unequivocal:  it may mean only that he suspected that it was done that way.  However, when he added that “[i]n the end they were trust funds”, I was left with the impression that Mr Carter was not quite sure who actually made the payment to the Commissioner, but that some accounting adjustments were later made such that an amount representing the total payment was ultimately shown as a debit in the plaintiff’s accounts.

1. In the circumstances, I am not satisfied that the plaintiff has proven that it paid to the Commissioner the whole (or any part) of the subject $70,746.50.

1. Late payment penalty and general interest charges:  This claim is for $52,499.15.  The Commissioner’s assessment was issued in 1996.  It was not paid then because of Mr Carter’s view that the subject lease incentive payment was capital and not income.  That view was ultimately abandoned.  The assessment was paid in 2004.

1. The plaintiff did not advance any argument as to why the defendants should be liable for this aspect of the claim.  It was opposed by the defendants.  I cannot see any basis for it either.  It is not recoverable.

Conclusion

1. The plaintiff has failed to prove that it suffered any of the damages claimed.  Liability therefore need not now be considered.

1. The plaintiff’s action is dismissed, with costs.