Pre-Paid Professional Administration Ltd v Deputy Commissioner of Taxation
[2010] FCA 173
FEDERAL COURT OF AUSTRALIA
Pre-Paid Professional Administration Ltd v Deputy Commissioner of Taxation [2010] FCA 173
Citation: Pre-Paid Professional Administration Ltd v Deputy Commissioner of Taxation [2010] FCA 173 Appeal from: Pre Paid Professional Administration Ltd v Deputy Commissioner of Taxation [2008] FCA 1580 Parties: PRE-PAID PROFESSIONAL ADMINISTRATION LIMITED v DEPUTY COMMISSIONER OF TAXATION File number: VID 263 of 2009 Judge: RARES J Date of judgment: 16 February 2010 Catchwords: PRACTICE AND PROCEDURE – whether special reasons existed to support application for extension of time to file a notice of appeal under Order 52 Rule 15(2) of the Federal Court Rules – case flimsy and weak on merits – not appropriate to raise on application to extend time new issues not heard at trial
Held: application dismissed with costs
Legislation: Federal Court Rules Cases cited: Coulton v Holcombe (1986) 162 CLR 1 applied
Jackamarra v Krakouer (1998) 195 CLR 516 applied
Jess v Scott (1986) 12 FCR 187 applied
Pre-Paid Professional Administration Ltd v Deputy Commissioner of Taxation [2008] FCA 1580 referred to
Secretary for the Home Department; Ex parte Mehta [1975] 1 WLR 1087 applied
Whisprun Pty Limited v Dixon (2003) 200 ALR 447, [2003] HCA 48 appliedDate of hearing: 16 February 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 35 Counsel for the Applicant: Mr S McMillan Solicitor for the Applicant: Jackson Lalic Lawyers Counsel for the Respondent: Ms D Harding Solicitor for the Respondent: Australian Government Solicitor
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
VID 263 of 2009
BETWEEN: PRE-PAID PROFESSIONAL ADMINISTRATION LIMITED
ApplicantAND: DEPUTY COMMISSIONER OF TAXATION
Respondent
JUDGE:
RARES J
DATE OF ORDER:
16 FEBRUARY 2010
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The application be dismissed with costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
VID 263 of 2009
BETWEEN: PRE-PAID PROFESSIONAL ADMINISTRATION LIMITED
ApplicantAND: DEPUTY COMMISSIONER OF TAXATION
Respondent
JUDGE:
RARES J
DATE:
16 FEBRUARY 2010
PLACE:
SYDNEY
REASONS FOR JUDGMENT
(REVISED FROM THE TRANSCRIPT)
This is an application for an extension of time in which to file a notice of appeal under O 52 r 15(2) of the Federal Court Rules. The applicant taxpayer objected to an assessment made by the Deputy Commissioner of Taxation in respect of the years of income 2005 and 2006. It brought proceedings challenging the assessment that were heard by the primary judge, who delivered a concise, closely reasoned judgment dismissing the taxpayer’s challenge on 23 October 2008: Pre-Paid Professional Administration Ltd v Deputy Commissioner of Taxation [2008] FCA 1580. His reasons turned on the construction of documents entered into between the taxpayer and others concerning the character in which the taxpayer held and dealt with moneys that were paid to it. The taxpayer was represented by solicitors and counsel. The hearing extended over four days in late July and early October 2008. His Honour granted an adjournment to the taxpayer of two months to enable it to meet changes which the Commissioner had made in his case.
The latest version of the draft notice of appeal has only been pressed today in respect of four grounds. Grounds 7, 10 and 11 relate principally to issues of construction of the relevant agreements and asserted errors by the primary judge in arriving at the construction he enunciated. Finally, ground 13 asserts that the taxpayer had been denied procedural fairness and a fair and proper hearing of the case because of conduct by the Commissioner in garnisheeing moneys and issuing default assessments and otherwise allegedly bringing pressure to bear on persons who were either funding or assisting in the conduct of the taxpayer’s litigation.
MR PETROULIAS’ POSITION IN RELATION TO THE TAXPAYER
It is common ground that from June 2008, that is shortly before the hearing commenced before his Honour, all the shares in the taxpayer and the beneficial interest in them were owned by Nicholas Petroulias. Mr Petroulias was previously a First Assistant Commissioner of Taxation himself, but had been convicted on charges for which he was serving a sentence of imprisonment in New South Wales. The proceedings were heard in Melbourne. The taxpayer is a New Zealand incorporated company. Because of the difficulties Mr Petroulias had, due to his status as a convicted prisoner, other persons than himself had to be directors of the applicant. No one appears to have communicated to Mr Petroulias until some time in April 2009 that his Honour had determined the proceedings and made final orders on 23 October 2008.
There is no dispute for the purposes of this application that Mr Petroulias was thus unaware of the need to cause a notice of appeal to be filed. There is some evidence from persons within the directors’ camp of the taxpayer that there was an expectation that Mr Petroulias would be informed of the judgment and would, in effect, take charge of the institution of any appeal. However, for whatever reasons, including the possibility of the difficulties of communicating with him while in prison, the directors took no steps to cause an appeal to be filed within 21 days of the primary judge’s decision and Mr Petroulias remained in ignorance of it until the application for an extension of time was filed in the Victorian District Registry on 22 April 2009.
Initially, Mr Petroulias, himself, sought to appear for the taxpayer on the application for an extension of time. But in late 2009, after the proceedings had been transferred to the New South Wales District Registry, a solicitor filed a notice of appearance on behalf of the taxpayer and has remained on the record.
PRINCIPLES
The principles governing the consideration of an application for an extension of time in which to file a notice of appeal were discussed in Jackamarra v Krakouer (1998) 195 CLR 516 and Jess v Scott (1986) 12 FCR 187. In Jackamarra 195 CLR 519 to 520 [3]-[4], Brennan CJ and McHugh J discussed the practice of various courts on the question of extending times. They referred, as had the Full Court in Jess v Scott 12 FCR at 191, to what Lord Denning MR had said in Secretary for the Home Department; Ex parte Mehta [1975] 1 WLR 1087 at 1091. There his Lordship said:
“We often like to know the outline of the case. If it appears to be a case which is strong on the merits and which ought to be heard, in fairness to the parties we may think it proper that the case should be allowed to proceed, and we extend the time accordingly. If it appears to be a flimsy case and weak on the merits, we may not extend the time. We never go much into the detail on the merits, but we do like to know something about the case before deciding whether or not to extend the time.” (emphasis added)
The Chief Justice and McHugh J (Jackamarra 195 CLR at 519 [4]; Kirby J also endorsed his Lordship’s statement (Jackamarra 195 CLR at 540 [66 par 4])):
“These remarks of Lord Denning were made in the context of an application for an extension of time to lodge an appeal. In that class of case, the respondent to the application has a vested right to retain the judgment, the subject of the appeal. To grant the application for an extension of time is to put at risk a vested right of the respondent.” (emphasis added)
They contrasted that position with an application to extend the time to do an act in an appeal or other proceeding already instituted, in which they categorised the considerations as going to questions of procedure.
I am of opinion that the present case should be approached on the basis that the Commissioner has a vested right to retain the judgment as Brennan CJ and McHugh J indicated. In Jess v Scott 12 FCR 191-192, Lockhart, Sheppard and Burchett JJ referred to the requirement in O 52 r 15(2) that, for special reasons, the Court may grant leave to file and serve a notice of appeal outside the 21 days provided for in the Rules. They said that the words “for special reasons” required an applicant to show special reasons why the appeal should be permitted to proceed, although filed or sought to be filed after the expiry of the 21 days, and that this distinguished the case from the usual course. The discretion of the Court is enlivened whenever it sees a ground that does justify a departure from the general rule in the particular case; that is, that there has to be something to take the proceedings out of the ordinary. They said that the rule was not intended to constrict the broad measure of justice for an individual case, and went on to say (Jess 12 FCR at 195):
“It should not be overlooked that rule 15(2) enables leave to be granted at any time. Special reasons relevant to such a power cannot describe an elastic test suitable for application across a range of situations, from an oversight of a day to neglect persisted in during a prolonged period. It would require something very persuasive, indeed, to justify a grant of leave after, for example, a year. Equally, it may be said something much less significant might justify leave where a party is a few days late. Special reasons must be understood in a sense capable of accommodating both types of situation. It is an expression describing a flexible discretionary power, but one requiring a case to be made upon grounds sufficient to justify a departure in the particular circumstances from the ordinary rule prescribing a period within which an appeal must be filed and served.”
THE SPECIAL REASONS ADVANCED BY THE TAXPAYER
Here, the taxpayer argued that Mr Petroulias’ ignorance of what, in effect, was his beneficially owned company’s failure in the litigation sufficies to demonstrate special reasons. That argument was buttressed by the submission that the present formulation of grounds 7, 10 and 11 of the draft notice of appeal articulated an arguable case.
The Commissioner accepted that had Mr Petroulias been aware of the result, he would have caused a notice of appeal to be filed within 21 days, and thus been able to pursue an appeal as of right. However, the Commissioner argued that, in substance, there is no sufficiently good case on the merits to warrant the Court finding special reasons for which an extension of time should be granted.
The taxpayer did not seek to demonstrate that the primary judge’s reasoning was wrong. Rather, it argued that because the draft notice of appeal sought to raise questions of construction and, presumably, because other minds might construe the relevant agreements differently, this was sufficient to warrant an inference that an arguable case had been established.
THE FACTUAL CONTEXT
The primary judge set out with such lucidity and succinctness the critical provisions of the documents that it is not necessary to summarise them in great detail here. In essence, the taxpayer had entered into a deed with its parent company, Pre-Paid Professionals LLC, that had been incorporated in the United States. The parent previously had wholly owned the taxpayer before Mr Petroulias.
The parent and the taxpayer entered into a collection agency deed dated 5 June 2005 under which:
·the taxpayer was appointed a collection agent on behalf of its then parent;
·the parent agreed to pay commission to the taxpayer (cl 3.1(b));
·the taxpayer could give a valid receipt on behalf of the parent for money it received, as agent of the debtor, in respect of services sold, on behalf of the parent when a payment direction had been made by the parent, and completed by the taxpayer (cl 4.2(a));
·until a payment direction was given by the parent, the funds were to be held on behalf of the client debtor and after such a direction was given, the funds to be held on trust for the parent (cl 4.2(b) and (c));
·it would be implicit in each direction the parent gave that the taxpayer was entitled to apply any moneys payable to the parent from the collection account, in payment of the taxpayer’s fees and commissions (cl 4.2(g)(ii)).
The taxpayer entered into hundreds of administration agreements with debtors or entities that were described as business agents. One such agreement was in evidence. The primary judge found that the business agents were, in effect, to be retailers who would sell warrants for the provision of professional services to customers or to the business agents themselves on the basis that the business agents would pay to the taxpayer in the then current year at least 15% of the value of all the warrants sold for the following year of income (cl 5.1). The administration agreement provided that:
·the taxpayer would pay, direct or disburse, the full 15% as a part payment of the entire amount due to the parent for prepaid services for which the business agent had irrevocably committed itself (cl 5.2);
·the taxpayer was entitled, at the end of a financial year, to an administration fee up to the amount of 15% of the value of all warrants to which the business agent had committed for the following year of income together with other fees, totalling a further 15% for the performance of other services (cl 6.1);
·the taxpayer, however, could exercise an election not to receive fees paid in that way, but instead, to receive 30% of the gross business income from the proceeds of endorsement of the warrants (cll 6.3, 6.4).
An issue before the primary judge, and raised by ground 11 of the draft notice of appeal, is whether an election under cl 6.4 occurred. As his Honour noted, this was an alternative basis on which the case had been put. He referred to a document in evidence consisting of a number of frequently asked questions provided by the taxpayer to business agents. The answer to one of those questions stated that the taxpayer would charge commissions, but it undertook to assist the business agents in getting their business started by charging only reasonable administration charges that would be payable from profits. The taxpayer stated that it would waive its administration fees if the business agent did not make a profit.
THE PRIMARY JUDGE’S DECISION
His Honour recorded a submission put by counsel for the taxpayer to the effect that it held on trust (i.e. as an agent) the money it received from a business agent, consisting of the 15% of the cost to acquire warrants in the current year of income. The taxpayer contended that when those 15% payments were banked by it it did so as agent for the paying business agent. The taxpayer also contended that the parent had not given it a direction under cl 4.2(g) of the collection agency deed to pay those moneys from its bank account to the parent.
His Honour identified the critical issue as being whether the taxpayer had established that it had held funds purely as agent on behalf of, first, the business agents and, later, the parent. If it held the funds on behalf of the parent, then there was a question whether the implicit direction had operated when it paid moneys to the parent, so that, if it did, the taxpayer was entitled to receive its commission from those funds.
His Honour said that if the taxpayer held funds, to all or part of which it was beneficially entitled by way of fees or commissions, to that extent, it would, have derived ordinary income. He found that it was not necessary for the taxpayer to earmark or retain those funds for them to be so treated. He concluded that the taxpayer had become entitled under the collection agency deed to the administration fee payable by the business agent and, as against the parent, it was entitled to deduct its fee. Each of those fees payable by the business agent to the taxpayer and by the parent to the taxpayer was 15% of the value of the warrant.
The primary judge held that in order to understand what “relevant fees and commissions” referred to in cl 4.2(g) of the collection agency deed the taxpayer had implicitly earned, it was appropriate to have regard to the terms of the administration agreement, entitling the taxpayer to fees paid by the business agent. After all, he said, these fees related to the same business operation and formed part of the same legal and commercial landscape. The collection agency deed (between the taxpayer and parent) explicitly referred to and acknowledged the relationship that its parties contemplated the taxpayer would have with business agents.
The primary judge also rejected the taxpayer’s claim that it had made an election under the administration agreement. He found that there was no evidence of such an election. None of the witnesses called by the taxpayer had given evidence of it making an election. And, his Honour found that the administration agreement specifically provided in cl 20, for any notice or other communication connected with that agreement be given or made in writing and served by prepaid post, fax or delivery.
For those reasons, his Honour dismissed the taxpayer’s application, challenging the validity of the assessments.
CONSIDERATION OF THE PROPOSED GROUNDS OF APPEAL
The Commissioner objected to a number of contentions in the proposed notice of appeal as being new and not issues or the subject of argument or evidence at the trial.
An appeal by way of rehearing does not entitle an appellant to treat the issues and the evidence below as being at large. As Gibbs CJ, Wilson, Brennan, and Dawson JJ said in Coulton v Holcombe (1986) 162 CLR 1:
“It is fundamental to the administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so, the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish. Powers of an appellate court with respect to amendment are ordinarily to be exercised within the general framework of the issues so determined and not otherwise.”
And more recently, in Whisprun Pty Limited v Dixon (2003) 200 ALR 447 at 461 [51], Gleeson CJ, McHugh and Gummow JJ said:
“It would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not reasonably have been met by further evidence at the trial. Nothing is more likely to give rise to a sense of injustice in a litigant than to have a verdict taken away on a point that was not taken at the trial and could or might have been met by rebutting evidence or cross-examination. Even when no question of further evidence is admissible, it may not be in the interests of justice to allow a new point to be raised on appeal, particularly if it will require a further trial of the action.”
Ground 7 of the proposed notice of appeal asserted that his Honour erred by interpreting the administration agreement (between the taxpayer and the business agents) as giving the taxpayer an entitlement to fees for the services it had actually performed on a number of bases. These included, first, a contention that his Honour had failed to consider the document as a whole. I am of opinion, having regard to his Honour’s reasons, that bare contention does not appear to have any substance.
Secondly, it was asserted that the primary judge had failed to take into account that the taxpayer had had no authority from the business agents to enter into the administration agreement with it on their behalf and, consequently, that agreement was always void and unenforceable. The Commissioner objected that this argument had not been put to his Honour. In addition, the assertion is almost unintelligible. The administration agreement was made between the taxpayer and the business agent. The taxpayer was a contracting party in its own right and needed no authority from the other contracting party to make an agreement between them.
But be that as it may, I am satisfied that the Commissioner’s objection demonstrates that the “argument” is inappropriate to be the subject of the grant of an extension of time in which to file an appeal. I am of opinion that this point should not be allowed to be raised now. But, in any event, it has no substance. Once the business agents had paid the 15% due by them to the taxpayer, they were entitled to proceed on the basis that they had given the consideration required under their contracts for the performance of whatever services the warrants entitled them to at that time. The taxpayer was then bound to deal with that money in accordance with its arrangements with the parent. And, the articulation of the contention does not cast any doubt on the way in which his Honour reasoned.
The Commissioner also complained, without opposition by the taxpayer, that a number of other bases set out in ground 7 challenged his Honour’s interpretation of the administration agreement were also new, namely claims that:
·an estoppel prevented the taxpayer from acting in the way his Honour found it had;
·services had not been performed for which the fees of 15% had been paid;
·the administration agreement was void for a total failure of consideration;
·a sum of $500 had been payable to cover the cost of some services performed.
Each of these grounds was not investigated before his Honour and could have raised issues of law and fact that may have been addressed at the trial by further evidence. They provide no proper foundation, particularly in the absence of any material demonstrating their arguability or the justice of allowing them to be put as fresh grounds, to support the exercise of the discretion to extend time in which to file an appeal.
Two other bases were put to support ground 7, namely that the taxpayer had given the business agents both marketing material and some financial statements that should have been considered by his Honour. The primary judge considered, at least in part, some marketing material that had been relied on by the taxpayer. This was evident from his consideration of the frequently asked questions. However, there is nothing specified in the ground as to what particular evidence of marketing material or financial statements his Honour allegedly should have considered. There is no material before me to suggest that his Honour did not consider properly or appropriately, or in a way which would attract appellate intervention, marketing or the financial material before him. There does not appear to be any substance in ground 7.
Next, ground 10 asserted that his Honour had erred in the construction of the collection agency deed (between the taxpayer and the parent) by finding that it gave the taxpayer an entitlement to funds held in trust. I am unable to read his Honour’s judgment as containing such a finding. What his Honour did was to construe the two critical agreements, one between the taxpayer and the business agents, the other between the taxpayer and the parent. Each agreement provided that money had a particular character when paid to, or by, the taxpayer and that that character would change on certain events occurring. His Honour held that once the business agent paid the 15% to the taxpayer, the administration agreement required the taxpayer to pay that amount to the parent as a part payment for the entire sum due for prepaid services.
Under the collection agency deed, when the parent directed the taxpayer to pay it money that the taxpayer had collected, the taxpayer was entitled implicitly, by force of cl 4.2(g), to the payment of its fees from that money. Those fees were equivalent to the same 15% as the taxpayer had collected. The first argument in support of the claimed errors in ground 10 asserted that his Honour had failed to construe the deed in accordance with the law of New Zealand. The Commissioner argued, first, that this had never been put to his Honour and thus was not a matter that could now be raised. I agree. Secondly, ground 10 does not identify what the effect of the law of New Zealand was. This asserted error could not be sustained in the absence of evidence or even any submissions below on that matter. The other bases in ground 10 are assertions that do not appear to have been founded on evidence or submissions put to his Honour. Again, they lack any substance.
Ground 11 of the draft notice of appeal asserted that:
“His Honour erred in considering that an “election” was necessary or was not made to disentitle fees that appellant may have had and/or that such an election was required to be formal or required to be sent by written notice.”
In my opinion, this ground has no reasonable prospect of success. The primary judge correctly understood the effect of cl 6 and the requirements of cl 20 of the administration agreement dealing with the taxpayer’s right to elect in respect of fees payable to it. There is no error revealed that appears to me to be arguable.
Ground 13 of the draft notice of appeal asserted that the taxpayer had been denied procedural fairness. The taxpayer was represented by solicitors and counsel during a four day hearing before his Honour. It had been given an adjournment of two months in the middle of the hearing in which to deal with a shift in the Commissioner’s case. In my opinion, it is impossible to understand the basis for this ground. Had there been the impact that the ground asserts on the ability of the taxpayer to conduct the proceedings before his Honour, one might have expected its legal representatives to have raised their difficulties during the course of the hearing. There is nothing to which I have been taken to suggest that the assertion that the taxpayer was not able to conduct the proceedings at trial appropriately was ever raised before his Honour. In those circumstances, this ground seeks to introduce completely new issues that were properly ones that ought to have been raised at trial. It is not appropriate that an application of this nature should be the vehicle by which they are enlivened for the first time: Coulton 162 CLR at 7; Whisprun 200 ALR at 461 [51].
CONCLUSION
I am of opinion that the case on which the extension of time is sought is very flimsy and weak to the point of almost lacking any merits. Notwithstanding that an explanation has been given for the taxpayer’s failure to file a notice of appeal within the 21 days, I am not satisfied that special reasons have been established to warrant the Commissioner being deprived of his vested right to retain the judgment the subject of the present application. The application should be dismissed with costs.
I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate:
Dated: 3 March 2010