Vasiliades v Commissioner of Taxation of the Commonwealth of Australia
[2017] HCATrans 104
[2017] HCATrans 104
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Melbourne No M6, M7 and M8 of 2017
B e t w e e n -
SOCRATES VASILIADES
Applicant
and
COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
Applications for special leave to appeal
KIEFEL CJ
KEANE J
TRANSCRIPT OF PROCEEDINGS
FROM CANBERRA BY VIDEO LINK TO MELBOURNE
ON FRIDAY, 12 MAY 2017, AT 10.05 AM
Copyright in the High Court of Australia
MR M.Y. BEARMAN: If it please the Court, I appear for the applicant. (instructed by HDL Legal and Consulting)
MR S.J. SHARPLEY, QC: May it please the Court, I appear with my learned friend, MR S.A. LINDEN, for the respondent. (instructed by Australian Taxation Office, Review and Dispute Resolution)
KIEFEL CJ: Yes, Mr Bearman.
MR BEARMAN: Your Honour, the applicant contends in this case that there is a principle or rule applying in discretionary decision making in the Federal Court where there is an award of security for costs under section 56 of the Federal Court Act that there should be a very strong predilection against awarding security for costs against a defendant or a person who is a defendant in substance.
KIEFEL CJ: That is the key question, is it not?
MR BEARMAN: That is the key question. It is my submission that such a principle does not operate as an absolute rule and that her Honour Justice Davies, the primary judge, contrary to what the majority of the Full Court found - did not find that it was an absolute rule but that a principle about a strong predilection of its nature carries with it discretionary overtones and in fact it is discretionary.
The case we advance is that that principle, like other principles applying in the exercise of courts’ discretion, provides a starting point which will determine an outcome, absent extraordinary circumstances, which should lead one to depart from that principle.
KIEFEL CJ: But would you accept that if the party in substance has the position of plaintiff, that that is a strong factor in favour of the grant of security for costs?
MR BEARMAN: Yes, your Honour. The question, in my submission, is that the way it should be approached is the way that it was approached in Willey v Synan (1935) 54 CLR 175 – that is, whatever the arrangements of the parties on the record of the court, the question is whether or not the person against whom security for costs is claimed is a defendant in substance, and it was accepted ‑ ‑ ‑
KIEFEL CJ: Why do you say that the applicant here was a defendant in substance?
MR BEARMAN: Your Honour, in my submission, that follows from the nature of proceedings under Part IVC of the Taxation Administration Act 1953. The Commissioner of Taxation issues a notice of assessment, in this case three notices for some tens of millions of dollars. The notice has the benefit of section 175 of the Income Tax Assessment Act 1936 and section 177 of that Act, and now section 350‑10 of the Schedule 1 of the Taxation Administration Act, which renders it conclusive evidence of the amount and the particulars therein ‑ ‑ ‑
KIEFEL CJ: Quite so, but it is the applicant who challenges that and puts the proceedings in train.
MR BEARMAN: Yes, your Honour, but in Willey v Synan, there was exactly such a notice served on the person who arrived on the boat, failing which the coins that were in issue would be forfeited to the Crown and the plaintiff in that case issued proceedings to protect property interest in the coins and the High Court ruled that he was a defendant in substance because the true commencement of the proceeding was the issue of the notice by the Collector of Customs.
In the same way, your Honour, in my submission, where a taxpayer issues proceedings under Part IVC of the Taxation Administration Act, the taxpayer is taking the only step available to set aside or reduce the assessment that has been issued to him or it in accordance with the authority of this Court in Commissioner of Taxation v Futuris 237 CLR.
KEANE J: But even granting that, this Court’s decision in Broadbeach Properties establishes that the commencement of proceedings under Part IVC does not even create a genuine dispute for the purposes of statutory demands. A party challenging an assessment is not just formally but is, as a matter of substance, a plaintiff, because that party bears the onus of establishing that the statutory debt, the debt created by the statute, is not owing.
MR BEARMAN: Your Honour, all four judges below accepted that the applicant in this case was a defendant in substance and the only way that the applicant – shall I go back a step? Having issued the notices of assessment in this case the Commissioner sought judgment for the debt created by the notice in the Supreme Court of Victoria, obtained it, enforced the judgment and obtained some $2.7 million from the sale of property, which was applied to the judgment debt.
The only means by which Mr Vasiliades could resist what the Commissioner did was to bring the present proceedings in the Federal Court. There was no basis at all allowed to, under the legislation, defend the application for a judgment debt which would be enforced against his property, otherwise than by the Part IVC proceedings.
So, in my submission, what occurs is the notice of assessment is deemed to create the debt to the Commonwealth, a statutory scheme entitles the Commissioner to his tax, absent the outcome of a dispute, and that therefore when the taxpayer following the statutory scheme commences proceedings in the Federal Court of Australia, or alternatively in the Tribunal, the taxpayer really is a defendant in substance because what the taxpayer is doing is trying to set aside or defease a judgment that has been deemed against him and for which he has no other means to respond. That was accepted by the primary judge and it was accepted below by all three judges of the Federal Court.
The reason that, in my submission, a principle such as that in Willey v Synan should apply in the present circumstances is that if it is accepted that the taxpayer is taking the only possible course open to him to defease the liability that has been arisen against him and the judgment debt that has been held against him and to recover his property, he truly is a defendant and it would be unfair to burden him with the security in the course of his defence.
KEANE J: Just pausing there and accepting for the sake of argument what you have said, if one looks at page 69 of the appeal book, in paragraph 79 of their Honours’ reasons, there is a reference to what the primary judge made of the principle in Willey v Synan and at line 60 it said of that principle:
“which is intended to prevent a defendant being put into a position where that defendant is shut out from justice”.
Now, you have said that your client is burdened, but am I right in thinking that there is no evidence that an order for costs or for security for costs will actually act as an impediment or to prevent your client pursuing his Part IVC proceedings?
MR BEARMAN: Your Honour, it is accepted there was no evidence that there would be stultification of the proceedings. The application was put both before the primary judge and the Full Court on the basis that Mr Vasiliades ought not be burdened in his defence and as the ‑ ‑ ‑
KEANE J: So, even accepting that your client might be characterised as functionally a defendant, it is not the case that the order would put him in a position where as a defendant he was shut out from justice.
MR BEARMAN: No, your Honour. In fact, the security has been paid. The bank guarantee was provided and there is no evidence about the difficulty or otherwise of him obtaining that.
KEANE J: So in a situation where your client is a resident outside Australia and is able to meet the condition – that is to say the security for costs – and proceed with his Part IVC proceedings, that what one sees is that he has been able to do that and apparently was always able to do it, so that absent the order the situation would be that in the event that your client fails with his Part IVC proceedings and an order for costs were made in favour of the Commissioner, the Commissioner would have to pursue your client overseas.
MR BEARMAN: Yes, your Honour.
KEANE J: In those circumstances, why is it not a perfectly sensible and proper exercise of the discretion, balancing those considerations, to bear upon the order for costs or for security for costs - why is not the order of the Full Court a perfectly orthodox application of principle?
MR BEARMAN: Because, your Honour, in my submission it has been the case since pre‑Willey v Synan and Maatschappij, the English case to which the High Court referred, and the other cases that are in Justice Dowsett’s decision below preceding it, that that inquiry was never made. The inquiry was: was the party against whom security was sought a defendant in substance and if that was the case it was an answer to what your Honour is putting to me and that is that the proceedings would not be stultified in these circumstances.
There was no suggestion in any of those prior authorities that it was necessary for the defendant to establish in the case where they were overseas and truly a defendant of substance – and I accept your Honour is taking that as the proposition – that in that circumstance, that was adequate and sufficient, absent special circumstances, because after all, if the party is a defendant, that party is being brought before the court, they are not truly invoking the court’s powers - they are being brought before the court to defend their position and it ought not be the case that defendants – and you can put aside defendants in substance – have security awarded against them because they are doing no more than responding to a proceeding that has been brought against them.
KIEFEL CJ: Well, let us just consider that for a moment and what was said in Willey v Synan at pages 184 to 185 of the Commonwealth Law Report. Justice Dixon refers to the judgment of Lord Justice Scrutton in Maatschappij where His Lordship said:
“The position, I think, extends to every case where the person against whom security is sought is really defending himself against attack, even if he be nominally a plaintiff -
Justice Dixon added at page 184 that:
If he does avail himself of the remedies the jurisdiction provides in order to obtain affirmative relief or redress, he may be ordered to give security, although he becomes a defendant in the action.
MR BEARMAN: Yes.
KIEFEL CJ: But the Full Court in this case at paragraph 85 quote from Lord Justice Scrutton’s judgment Maatschappij saying:
“a party to judicial proceedings, who resides beyond the jurisdiction, should not be required to give security for costs unless, however the parties are arranged upon the record, he is the person invoking or resorting to the jurisdiction for the purpose of establishing rights or obtaining relief.”
That is the position of the applicant here.
MR BEARMAN: With respect, no, your Honour. The position in Willey v Synan was that coins were found on the boat, a notice was served, if the person on the boat did not issue proceedings the coins were forfeited and the court ‑ ‑ ‑
KIEFEL CJ: Those are the facts of the case.
MR BEARMAN: Yes.
KIEFEL CJ: But the statement of principle is that the person in the position of plaintiff is whoever invokes or resorts to the jurisdiction for the purpose of establishing rights.
MR BEARMAN: Yes, and we say, your Honour, that his position has been invoked by the Commissioner by the issue of a notice of assessment. After that, the only thing that Mr Vasiliades can do is bring proceedings on Part IVC or suffer the consequences of the debt that is deemed to be established against him and against which he has no other defence.
KIEFEL CJ: Mr Bearman, the Full Court continuing in that paragraph to which I have referred, paragraph 85, seemed to think that the proposition for which that case stands is not the rule to which you are referring but rather that the justice of the case must be kept in mind and that any exercise of discretion will depend on the particular circumstances of the case.
MR BEARMAN: Your Honour, we accept that paragraph - that statement, but say it goes too far. In our submission, what the Full Court did was start with a proposition that her Honour Justice Davies below had treated the principle which we contend is an absolute rule which should never be departed from.
In our submission, that was not what her Honour meant; it is not what we contend for here. Of course, we accept that the exercise of discretion – it is a statutory discretion, it is governed by justice, but in my submission there should be principles established by authority that enable courts to find starting places from which one can determine whether or not the discretion is likely to be or should be exercised in a particular case absent extraordinary circumstances.
PS Chellaram, which is a decision of Justice McHugh, is such a principle ‑ and it is the one relied upon, with respect, in the passage that your Honour has referred me to ‑ and suggests that non‑residents would ordinarily pay security if they have no asset or assets in Australia. That principle applies to plaintiffs and what was said below, your Honour, is that there really is not a tension between those two principles in this case because it is accepted that if Mr Vasiliades is truly a plaintiff then we do not have any basis to resist the order for security.
In my submission, the way that PartIVC of the Taxation Administration Act, the scheme of the legislation operates is such that he is truly a defendant and therefore Willey v Synan should operate as a principle, which gives a starting point to the court to determine whether or not security should be ordered and from that principle the court of course must look at the justice of the case. I do not try to put it any higher than it is a rule in discretionary decision making such as must follow the event, your Honour.
KIEFEL CJ: Accepting that, if the Court is looking to the justice of the case, the factor to which Justice Keane earlier referred, namely the effect upon a party if an order for security for costs is made and their litigation, the stultification to which you referred becomes important.
MR BEARMAN: Your Honour, may I answer that question?
KIEFEL CJ: Yes, of course.
MR BEARMAN: The stultification of a proceeding is of itself a factor that should be taken into account and it is a principle that may be relied upon to apply perhaps in contradistinction to or to be taken into account with the principle for which I have sought the Court to find for. There was no evidence one way or another in respect of the application of that principle save for the ex post facto event that the security was in fact paid.
In my submission, stultification is only a factor and it is the true burden on a defendant to which the rule in Willey v Synan is applied, your Honour. For those reasons and because in my submission this case involves general application of that rule, special leave should be granted.
KIEFEL CJ: Thank you, Mr Bearman. Mr Sharpley, we do not need to trouble you. I will ask Justice Keane to give the judgment of the Court.
KEANE J: This application concerns a matter of practice and procedure in relation to the giving of security for costs. The applicant’s prospects of success, and the interests of the administration of justice, do not warrant the grant of special leave to appeal. Special leave should be refused with costs.
KIEFEL CJ: I agree.
The Court will now adjourn to reconstitute.
AT 10.24 AM THE MATTER WAS CONCLUDED