WCVB and Commissioner of Taxation (Taxation)

[2023] AATA 4549

WCVB and Commissioner of Taxation (Taxation) [2023] AATA 4549 (21 June 2023)

ReviewNumber:       2020/1822

Administrative Appeals Tribunal

ADMINISTRATIVE APPEALS TRIBUNAL	)
)	No: 2020/1822
TAXATION AND COMMERCIAL DIVISION	)

Re: WCVB

Applicant

And: Commissioner of Taxation

Respondent

DIRECTION

TRIBUNAL:              Deputy President Bernard J McCabe

DATE OF CORRIGENDUM: 17 July 2023

PLACE:                    Sydney

The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, to alter the text of the decision made on 21 June 2023 in this application such that:

1. The table in paragraph [17] of the decision is replaced with the following table:

Item	Date	Event
1.	22 May 2020	Applicant is directed to file and serve its SFIC by 28 August 2020.
2.	26 June 2020	Applicant is directed to file and serve its SFIC and evidence by 21 September 2020.
3.	30 September 2020	Applicant is directed to file and serve its SFIC and evidence by 20 November 2020.
4.	25 November 2020	Applicant is directed to file and serve its SFIC and evidence by 19 February 2021.
5.	13 May 2021	Applicant is directed to file and serve its SFIC and evidence by 30 June 2021.
6.	1 July 2021	Applicant is directed to file and serve its SFIC and evidence by 23 July 2021.
7.	21 July 2021	Applicant is directed to file and serve its SFIC and evidence by 5 August 2021.
8.	5 August 2021	Applicant files SFIC and evidence.
9.	20 August 2021	Respondent SFIC and evidence directed by 24 September 2021.
10.	24 September 2021	Directions submitted by consent for time for respondent SFIC and evidence to be extended to 3 December 2021.
11.	8 October 2021	Respondent applies for eight summonses to issue.
12.	15 October 2021	Six summonses are issued with a return date of 10 November 2021.
13.	22 October 2021	Two summonses are issued with a return date of 10 November 2021.
14.	9 November 2021	Applicant applies to set aside all summonses issued at respondent’s request.
15.	12 November 2021	Directions made on applicant’s interlocutory application (including vacating direction for respondent SFIC).
16.	26 November 2021	Hearing of applicant’s interlocutory application.
17.	16 December 2021	Tribunal issues decision and reasons for decision on interlocutory application. Three summonses are to be amended and reissued in minor respects.
18.	17 December 2021	Respondent lodges three amended draft summonses as required.
19.	16 February 2022	Document inspection orders are made.
20.	9 March 2022	Document inspection orders are made.
21.	15 March 2022	Document inspection orders are made.
22.	19 May 2022	Respondent SFIC directed by 10 June 2022.
23.	10 June 2022	Respondent SFIC filed as directed.
24.	17 June 2022	Applicant directed to file any further material by 8 July 2022.
25.	8 August 2022	Applicant directed to file and serve any further evidence by 16 September 2022.
26.	10 October 2022	Applicant directed to file and serve any amended SFIC and further evidence by 26 October 2022.
27.	15 November 2022	Applicant directed to file and serve any amended SFIC and further evidence by 8 December 2022.
28.	13 January 2023	Tribunal notifies parties of intention to list non-compliance directions hearing.
29.	16 January 2023	Applicant submits request, with respondent’s consent, for extension to be granted without need for appearances by the parties.
30.	19 January 2023	Applicant directed to file and serve any amended SFIC and further evidence by 21 February 2023.
31.	25 January 2023	Tribunal confirms that a non-compliance directions hearing will not be listed in relation to the applicant’s failure to comply with the direction dated 15 November 2022.
32.	3 March 2023	Applicant non-compliance directions hearing is listed in relation to the direction dated 19 January 2023.
33.	9 March 2023	Applicant non-compliance directions is held. Applicant directed to file and serve any amended SFIC and further evidence by 4 April 2023.
34.	Present (11 May 2023)	The applicant is in continuing breach of the direction dated 9 March 2023.

...........................[SGD].............................

Bernard J McCabe, Deputy President

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2020/1822

Re:WCVB

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:21 June 2023

Place:Sydney

The application for dismissal under s 42A(5) of the Administrative Appeals Tribunal Act 1975 is

refused.

........................................................................

Bernard J McCabe, Deputy President

Catchwords

Discretion – dismissal – court-like – good government – statutory objective – costs – compliance

with directions – egregious delay – non-compliance

Legislation

Administrative Appeals Tribunal Act 1975

Legal Services Directions 2017

Taxation Administration Act 1953

Cases

AON Risk Management Services Ltd v Australian National University [2009] HCA 27

Berry v Commissioner of Taxation [2015] FCA 1244; (2015) 149 ALD 270

REASONS FOR DECISION

Deputy President Bernard J McCabe

13 June 2023

1. The Commissioner of Taxation has asked the Tribunal to dismiss these proceedings pursuant to s 42A(5) of the Administrative Appeals Tribunal Act 1975 (the AAT Act) in light of numerous delays which suggest a clear failure to progress the application for review.

Managing reviews efficiently

1. Australia’s constitutional arrangements include a clear separation of powers between the different branches of government. In practice, those arrangements assign a limited role to the courts when it comes to reviewing decisions of the executive. The courts are generally confined to determining whether executive decisions are lawful. A person affected by an administrative decision who wants to complain about the merits of a government decision must look elsewhere for relief. That is where the Administrative Appeals Tribunal comes in. Tribunal reviews can engage with questions of public interest and public policy that frequently arise in executive decision-making. Inevitably, the Tribunal also engages with questions of law since its decisions must be lawful.

2. The Tribunal was established in 1975 to provide a dedicated mechanism for the review of government decisions. Its jurisdiction is not at large. It may only review decisions that are declared to be reviewable under an enactment. (There are over 450 enactments that create review rights, including Part IVC of the Taxation Administration Act 1953.) The Tribunal’s review in most divisions is based on a court-like model which has been adapted to meet the demands of the reviews the Tribunal undertakes.

3. Those responsible for the design of the Tribunal did not select a court-like model because they lacked the imagination to conceive of alternatives.  Even in the 1970s, it was understood the extent and sheer volume of government decision-making was likely to overwhelm a review mechanism that provided informal, one-off reviews. Sir Gerard Brennan, the first president of the Tribunal, referred to the risk of a “wilderness of single instances”.[1]

   [1] Sir Gerard Brennan, ‘The AAT — Twenty Years Forward’ (Speech, Administrative Appeals Tribunal Twentieth Anniversary Conference, Canberra, 1 July 1996).

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   The better approach was for the review mechanism to establish norms by modelling good decision-making behaviour in the handful of cases that were not resolved through the Tribunal’s alternative dispute resolution processes. Those reviews featured forensic information gathering processes like those used in the courts, including the power to summons documents and witnesses, and evidence given on oath which was tested through cross-examination.

4. The focus on rigorous forensic fact-finding processes makes sense because objective, evidence-based decision-making is a feature of good government. Experience also shows that in many cases where the Tribunal varies or sets aside a decision, the changed outcome is attributable to the fact the Tribunal has learned more about the problem compared to the primary decision-maker.

5. Another court-like component imported into the Tribunal was the appointment of highly-skilled, objective decision-makers who understood how to find facts and apply the law. The first appointees to the Tribunal were either judges, or former judges. They were expected to publish clear and persuasive reasons that were publicly accessible. The Tribunal’s decisions became a public asset which could be consulted by the bureaucracy and those dealing with government as they engaged with each other in the future.

6. The careful, even elaborate review of individual cases was costly if that cost was assessed in isolation, but there was the potential for huge efficiency gains across the government if the Tribunal was able to drive improvements in the quality of executive decision-making.

7. While the Tribunal contributes to the efficiency of government decision-making, there is no getting away from the fact there is a cost attached to Tribunal processes. Reviews also take time, most obviously because s 39 of the AAT Act says all parties must be given the opportunity to present and test evidence and make submissions, and because the evidence and submissions must be weighed carefully by the decision-maker. Proceedings in the Tribunal can be every bit as complex as proceedings before a court given the legal challenges. (Proceedings under Part IVC of the Tax Administration Act 1953 in the Tribunal are essentially the same as those filed in the Federal Court: applicants have a choice over the forum in which they appeal against an objection decision.) That means there is an irreducible minimum of formality and cost.

8. The Commonwealth funds the merits review machinery, but individual litigants – both applicants and respondents – are generally expected to meet their own costs. Those costs can be significant in a contested case where both parties are represented up to and through a hearing. In those circumstances, it is incumbent on the Tribunal to manage proceedings carefully to ensure the review proceeds in accordance with the Tribunal’s statutory objective in s 2A of the AAT Act: see Berry v Commissioner of Taxation [2015] FCA 1244; (2015) 149 ALD 270 at [36] per Jagot J. Section 2A(a) refers to the need for the review to be “accessible”, s 2A(b) refers to the need for the review to be “fair, just, economical, informal and quick”, and s 2(c) speaks of the need for reviews to be proportionate to the complexity and importance of the review. Section 2A(d) refers to the importance of promoting public trust and confidence in the Tribunal’s decision-making.

9. Managing proceedings in accordance with s 2A contemplates a balancing act. No two cases are the same, and the Tribunal must exercise judgment in the case management process to achieve an outcome in each case that meets the objective in s 2A. That outcome will not be achieved if cases are allowed to drag on unnecessarily, or where one party is put to expense as the consequence of carelessness or default on the part of the other party. Indeed, that sort of egregious delay discredits the Tribunal’s review and undermines it in the performance of its function: see, generally, the decision of the High Court in AON Risk Management Services Ltd v Australian National University [2009] HCA 27.

10. The business of case management in the Tribunal is complicated by the absence of a power to award costs as a sanction for irregular behaviour. (A targeted power to award costs is one of the features of the court-like model which did not make its way into the AAT Act despite the Kerr committee’s recommendation that it be available.)[2] The Tribunal also has few formal powers for dealing with default by a decision-maker. It does not have contempt powers, although it may refer conduct that would amount to contempt of court to the Director of Public Prosecutions who may consider launching a prosecution under s 63 of the AAT Act.

    [2] Report of the Commonwealth Administrative Review Committee Canberra: Govt. Printer, 1971. [270]. Web. 12 June 2023 <>

    Having said that, the decision-maker is under a statutory obligation to assist the Tribunal to make its decision (s 33(1AA)) and all parties and their representatives are under a statutory obligation to assist the Tribunal to meet its objective in s 2A (s 33(1AB)). While the Tribunal’s enforcement powers are limited, it can refer a recalcitrant decision-maker and its representatives under the Legal Services Directions 2017. Representatives of applicants and respondents might also be referred to professional bodies in the event of misconduct.

11. The dismissal power in s 42A(5) of the AAT Act is the ultimate mechanism for dealing with an applicant who fails to progress their application. (It is not useful for dealing with a recalcitrant decision-maker, for obvious reasons.) That provision says:

    (5)  If an applicant for a review of a decision fails within a reasonable time:

    (a)to proceed with the application; or

    (b)to comply with a direction by the Tribunal in relation to the application;

    the Tribunal may dismiss the application without proceeding to review the decision.

12. The power must be exercised cautiously and deliberately given the consequences. It should not be used punitively (see, generally, AON at [35] per French CJ) But the power is available and should be used deliberately where appropriate to help the Tribunal achieve its objective: see Berry at [37]-[38] per Jagot J.

The proceedings so far

1. That brings me to the dismissal application in this case. The Commissioner says the application for review should be dismissed pursuant to s 42A(5)(a) in light of the applicant’s failure to proceed. (The Commissioner initially relied on s 42A(5)(b) as well or in the alternative because the applicant was, at the time of the Commissioner’s application, in a state of non-compliance with a direction. The applicant has since taken the steps required by that direction. I will have more to say about that below.)

2. The applicant’s conduct of these proceedings is summarised in a table annexed to written submissions filed on behalf of the Commissioner:

Item	Date	Event
1.	22 May 2020	Applicant is directed to file and serve its SFIC by 28 August 2020.
2.	26 June 2020	Applicant is directed to file and serve its SFIC and evidence by 21 September 2020.
3.	30 September 2020	Applicant is directed to file and serve its SFIC and evidence by 20 November 2020.
4.	25 November 2020	Applicant is directed to file and serve its SFIC and evidence by 19 February 2021.
5.	13 May 2021	Applicant is directed to file and serve its SFIC and evidence by 30 June 2021.
6.	1 July 2021	Applicant is directed to file and serve its SFIC and evidence by 23 July 2021.
7.	21 July 2021	Applicant is directed to file and serve its SFIC and evidence by 5 August 2021.
8.	5 August 2021	Applicant files SFIC and evidence.
9.	20 August 2021	Respondent SFIC and evidence directed by 24 September 2021.
10.	24 September 2021	Directions submitted by consent for time for respondent SFIC and evidence to be extended to 3 December 2021.
11.	8 October 2021	Respondent applies for eight summonses to issue.
12.	15 October 2021	Six summonses are issued with a return date of 10 November 2021.
13.	22 October 2021	Two summonses are issued with a return date of 10 November 2021.
14.	9 November 2021	Applicant applies to set aside all summonses issued at respondent’s request.
15.	12 November 2021	Directions made on applicant’s interlocutory application (including vacating direction for respondent SFIC).
16.	26 November 2021	Hearing of applicant’s interlocutory application.
17.	16 December 2021	Tribunal issues decision and reasons for decision on interlocutory application. Three summonses are to be amended and reissued in minor respects.
18.	17 December 2021	Respondent lodges three amended draft summonses as required.
19.	16 February 2022	Document inspection orders are made.
20.	9 March 2022	Document inspection orders are made.
21.	15 March 2022	Document inspection orders are made.
22.	19 May 2022	Respondent SFIC directed by 10 June 2022.
23.	10 June 2022	Respondent SFIC filed as directed.

1. The Commissioner accepts the applicant has now belatedly complied with the direction of 9 March 2023. The amended statement of facts, issues and contentions (SFIC) was filed on 19 May 2023. That was about six weeks after the most recent extended deadline. The applicant also filed further evidence in the form of an affidavit.  Ms Kovacs, counsel for the Commissioner, said she did not have a proper opportunity to engage with the new material however she observed at the hearing:

   ·The amended SFIC contained relatively minor changes – what counsel described as ‘two very minor tweaks to two paragraphs, and the inclusion of two new paragraphs”: transcript at pp 2, 6. Ms Kovacs said the fact it took the applicant nearly 11 months to produce a document incorporating such modest changes was “preposterous”; transcript at p 6; and

   ·The fresh affidavit that had been foreshadowed was only seven pages long. (Ms Kovacs pointed out that, confusingly, another version of the same document was filed with some additional text that was not highlighted.)

2. The amended SFIC was delivered some 6 months after it was first ordered according to the table set out above, while the table records the additional material was the subject of directions in June 2022. Ms Kovacs reminded me the applicant’s solicitors had told the Tribunal at an earlier non-compliance direction hearing on 9 March 2023 that the amended SFIC would include minor ‘tweaks’ but the affidavit would be ‘substantial’. On that occasion, the solicitor appearing on behalf of the applicant offered an assurance that the timeframe for delivering the material was realistic. I was assured the solicitors and their client were serious about progressing the matter. On the strength of those assurances the Tribunal gave a further extension until 4 April 2023.

3. Ms Kovacs said the applicants were not serious about progressing the matter, even at that late stage. In any event, the applicant did not comply with the (extended) deadline. The applicant’s solicitors appeared to compound the default with discourtesy: they did not contact the Commissioner’s representatives or the Tribunal to explain the delay or seek yet another extension in advance of the deadline. They finally filed the material in belated compliance with the direction a month later, after the non-compliance hearing had already been listed.

4. Ms Kovacs said it was unclear whether the applicant had now completed its evidence. She was particularly concerned about references to three expert reports which the applicant apparently intended to rely on. She said the significance of those reports was unclear and she feared their introduction would trigger a whole new round of evidence-gathering which would necessitate the Commissioner seeking its own reports, and the applicant being given still more time to file reply evidence. She said there was no end in sight for these proceedings.

5. As the Commissioner pointed out in written submissions, the application for review has now been on foot for over three years. The application relates to a tax period that ended over 12 years ago. That is a problem, in and of itself. Every day that passes in these proceedings makes the job of the Tribunal more difficult. Cases that involve reconstructing events occurring a long time in the past are always difficult to decide. Memories fade and witnesses become unavailable. Documents are lost. Fact-finding is always a challenge, but delay makes it even harder. It is not a sufficient answer in a case like this to say the applicant carries more of that risk in light of the onus under s 14ZZK of the TAA. At a minimum, proceedings may become more protracted as they grow older, which adds to the cost for everyone involved.

1. The Tribunal must keep in mind that some applicants are prepared to bear the cost of endless delays where they see some disadvantage, real or imagined, in putting off a final hearing.

2. Mr Vale, who appeared for the applicant, acknowledged there had been numerous failures to meet the timetable but argued the delay needed to be understood in context. He said the applicant had filed its original SFIC and evidence-in-chief by 5 August 2021. He said the applicant was ready to move forward at that point. Mr Vale pointed out the Commissioner’s information gathering processes took 10 months after receiving the applicant’s material. The Commissioner finally supplied a SFIC in June 2022.

3. Mr Vale argued the applicant’s delay thereafter was at least partly occasioned by the need to respond to a new issue that had been raised in the Commissioner’s document: the so-called ‘fourth contract’ issue. Mr Vale said the fourth contract issue had not been a factor in the objection. He said the emergence of this issue necessitated a whole new line of inquiry which required it to engage with a third party. The third party in question was in administration and it proved difficult to obtain the relevant information. Ms Kovacs conceded this issue had not featured in the objection decision but pointed out it had been raised as an issue at the audit stage: see T-document 51 at p 754, referred to in the transcript of the interlocutory hearing at p 13. She said the applicant should have been aware of the issue and in any event had ample time since the Commissioner filed his statement of facts, issues and contentions to deal with it.

4. Mr Vale also referred in written and oral submissions to other complications his firm and client encountered in complying with the direction. He pointed out the applicant’s claim involved consideration of a complex web of transactions involving 50 other associated entities. A number of those other entities are also involved in litigation, and there have been events involving the other entities (such as a scheduled mediation which did not proceed) that distracted them. Mr Vale’s firm has only been involved in the matter since June 2022 after the applicant changed representation, and the applicant has recently appointed a new firm of accountants to deal with all the demands from the Commissioner. Mr Vale said the applicant had to do all that while coping with extraordinarily difficult business conditions.

5. The Tribunal endeavours to be realistic about the demands that litigation places on small businesses. Many taxpayers are in a state of crisis when they make their application for review. The Commissioner may not be the only threat the taxpayer is facing at the time. The Tribunal certainly approaches each litigant having regard to its circumstances. But the Tribunal is still required to operate the mechanism of review in accordance with the objective in s 2A. In doing so, it has fewer tools at its disposal than a court. The absence of a costs’ power in particular creates the risk of default and delay becoming an abuse of process. The review process may be expensive for an applicant, but it is also expensive for the decision-maker and the Tribunal itself – and the decision-maker and the Tribunal are expending public monies. If an applicant does not make proper use of the opportunity for review, that opportunity will be lost.

6. Having said all that, Mr Vale confirmed at the non-compliance hearing:

   ·The applicant is not putting on any further evidence.  All the evidence the applicant intends to rely on is now before the Tribunal, and it has been served upon the Commissioner. Subject to any additional steps the Commissioner wishes to take after it analyses the comparatively limited new material, the applicant is ready for the matter to go to a hearing: transcript at p 15. 

   ·The applicant will not introduce the three expert reports that concerned Ms Kovacs into these proceedings: transcript at p 14.

7. Those concessions provide some sort of answer to Ms Kovac’s concern that there was no end in sight to the proceedings. To the extent the applicant has been a moving target, the Commissioner now knows what is being put. Subject to any further steps the Commissioner wishes to take, there is no reason why this matter cannot be listed for a hearing within the next few months – and at any rate before the end of the year.

8. I take Ms Kovac’s point that the Commissioner needs to review the material which has recently been filed. He may yet need to put on further material in reply. The applicant would presumably need the opportunity to file material that is directly responsive to anything the Commissioner filed. But that need not take long. Notwithstanding the tortured history of this matter, the applicant must understand that further delay – and any further non-compliance – would be met with a stringent response.

9. If the applicant had remained non-compliant by the time of the non-compliance hearing, I would not have hesitated to dismiss the proceedings under s 42A(5) given:

   ·      the history of delay and non-compliance; and

   ·     the instances of discourtesy to the Commissioner and the Tribunal – discourtesy in the form of repeated failures to signal and explain delays and seek appropriate extensions.

10. The Commissioner no longer presses for me to dismiss the proceedings on the basis of non-compliance with a direction. The Commissioner says the applicant has failed to proceed within a reasonable time. I accept that, having regard to the applicant’s conduct and its circumstances, the applicant has had a reasonable time to proceed. It certainly has not proceeded quickly enough. The discretion to dismiss is therefore enlivened. The discretion presumably remains enlivened if I do not dismiss on this occasion. It could be exercised in favour of dismissal if the applicant subsequently fails to comply with directions or otherwise fails to proceed.

11. The Tribunal and each of the parties have good reason to reflect on the case management process that has led us to this point. It may be that the Tribunal and the Commissioner have been too accommodating, thereby contributing to the delay. If so, that holds lessons for the future. But for now, I have decided against exercising the discretion under s 42A(5). I do so in circumstances where the applicant’s case is now on, notwithstanding the egregious delay in getting to this point. The hearing is now in sight. To dismiss the proceedings in those circumstances would be punitive.

Conclusion

1. The application for dismissal is refused, however the application can be renewed at short notice in the event of further default. The applicant should be in no doubt that any application for dismissal will be dealt with quickly in light of my findings set out in these reasons. It has been warned.

2. The Commissioner is directed to propose a fresh set of timetabling orders within 7 days of the date of these reasons which take the matter to a hearing before the end of the year. If those directions are not agreed by the applicant, it should file its own proposal within 3 days of receiving the Commissioner’s proposal. Each party should file a draft hearing certificate which includes an estimate of the amount of time to be allocated to a hearing and their availability (or periods of non-availability) for a hearing between August and December 2023. The draft hearing certificates should be exchanged within 7 days and provided to the Tribunal.

36.     I certify that the preceding 35 (thirty-five) paragraphs are a true copy of the reasons for the decision herein of

37.      

........................................................................

Associate

Dated:  21 June 2023

Date(s) of hearing:

22 May 2023

Solicitor for the Applicant:

Greg Vale

Counsel for the Respondent:

Solicitor for the Respondent:

Ermelinda Kovacs

Australian Government Solicitor